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GM Bankruptcy fears
Old 11-15-2005, 07:23 PM   #1
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GM Bankruptcy fears

Is this old news? Haven't been following all this.

http://biz.yahoo.com/ap/051115/gm_ba...ears.html?.v=7

I always think about our threads about JG's GMAC bonds and why they were paying such a nice premium a year ago. Not sure if GMAC would be tarred with the same brush, but it always makes ya think.

My takeaway lesson, that I understand many will disagree with: no individual company is ever safe enough for a buy-and-hold ER investor -- give me a low-cost tax-efficient fund any day.

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Re: GM Bankruptcy fears
Old 11-15-2005, 09:31 PM   #2
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Re: GM Bankruptcy fears

No one company is safe to hold as a long term buy and hold investment, yet the employees are dependent upon one company for their pension/health care. People would be better off with cash on the barrel head, and investing their own money for retirement in a diversified manner.

Putting 30 years into GM's pension plan is a very high risk investment. The same as their stock and bonds.
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Re: GM Bankruptcy fears
Old 11-15-2005, 10:47 PM   #3
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Re: GM Bankruptcy fears

Easy to say in retrospect;* 15 years ago, those GM guys (my brother is one) were only looking at the retired stiffs who had it made in the shade.* Is the same (your proposition) true of those on gov't and military pensions?? I guess I would say not, but I am sure that a case could be made for 'yes."
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Re: GM Bankruptcy fears
Old 11-16-2005, 12:16 AM   #4
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Re: GM Bankruptcy fears

I agree.* The government will just print more money to pay military pensions.* This will debase the value of GM and other private pensions (paid by the PBGC, which doesn't index for COLA) through inflation.* In effect, money will be transferred from private pensions to public pensions (and other government expenditures).* The private pensioners will notice that their pensions no longer buy much, but will have no idea why.* The CPI will be further cooked to pretend that nothing happened.

Cash on the barrel head in private industry.* The rest is just a trick.* Skip the regular bonds in the portfolio, and replace them with inflation hedges.* The government has no way to repay the debt, so they won't.* They will follow the time honored tradition of inflating it away, and pretending that they repaid it.

http://www.house.gov/paul/tst/tst2005/tst111405.htm
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Re: GM Bankruptcy fears
Old 11-16-2005, 02:53 AM   #5
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Re: GM Bankruptcy fears

It is an unfortunate situation, particularly for those directly involved (employees, suppliers, bondholders, retirees, etc.). Until very recently I had substantial funds in the GMAC Demand Notes program but it became painfully obvious that the risk was not worth the great rates. I think that a spin-off of GMAC while it is still worth something should be seriously considered by the board as the funds not tied up long term are leaving like rats from a sinking ship.

A couple of quotes from an updated GMAC prospectus summary:

"We have recently experienced a series of negative credit actions, resulting in the downgrade of our credit ratings to historically low levels. Only one of four nationally recognized rating organizations currently rate us as investment grade and any further reduction of our credit ratings would negatively affect our business."

"Our business requires substantial capital, and if we are unable to maintain adequate financing sources our profitability and financial condition will suffer and jeopardize our ability to continue operations."

Good enough for me to look for an exit . . .
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Re: GM Bankruptcy fears
Old 11-16-2005, 05:43 AM   #6
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Re: GM Bankruptcy fears

Quote:
Originally Posted by windsurf
Easy to say in retrospect; 15 years ago, those GM guys (my brother is one) were only looking at the retired stiffs who had it made in the shade. Is the same (your proposition) true of those on gov't and military pensions?? I guess I would say not, but I am sure that a case could be made for 'yes."
Great point. There seems to be tremendous confidence that existing and future gov-military pensions are absolutely safe while private pensions and SS are obviously in trouble. How will voters feel when SS and pension bailouts get slashed while gov-mil benefits remain intact. Who knows, but it could get nasty.
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Re: GM Bankruptcy fears
Old 11-16-2005, 06:47 AM   #7
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Re: GM Bankruptcy fears

Wow. I always considered the gov't pension part of my FERS comp package inviolable, even while acknowledging that SS would most likely have to change. I sure hope that doesn't turn out to be a naive assumption!
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Re: GM Bankruptcy fears
Old 11-16-2005, 07:53 AM   #8
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Re: GM Bankruptcy fears

Cashin' out......I removed most of my money from my GMAC Demand notes too.

The risk wasn't worth the interest rate to me.
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Re: GM Bankruptcy fears
Old 11-16-2005, 07:54 AM   #9
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Re: GM Bankruptcy fears

Last spring, the bankruptcy talk for GM was that it probably had three years to get its house in order or it would end up in bankruptcy. Now the talk is of shorter time frames. I haven't heard much lately about the possibility of selling off GMAC. If I recall, a little more than half of GMAC's business is auto loans.
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Re: GM Bankruptcy fears
Old 11-16-2005, 09:00 AM   #10
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Martha
Last spring, the bankruptcy talk for GM was that it probably had three years to get its house in order or it would end up in bankruptcy. Now the talk is of shorter time frames. I haven't heard much lately about the possibility of selling off GMAC. If I recall, a little more than half of GMAC's business is auto loans.
If you happen to know any investment bankers (I have a few in the family) ask them, GM is shopping GMAC like nobodies business. The trouble is finding somebody big enough with cheap capital to buy them. HSBC, GE capital, and Citibank come to mind.

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Re: GM Bankruptcy fears
Old 11-16-2005, 09:04 AM   #11
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Martha
Last spring, the bankruptcy talk for GM was that it probably had three years to get its house in order or it would end up in bankruptcy.* Now the talk is of shorter time frames.
Lemme point out that conventional wisdom says we should invest in a company of such a large capitalization, with so much cash, a generations-long history, and a product still in demand by many. *The fact that it's trading at a 23-year low means we should be backing up the truck!

Like TH has said, the stock market is the only store in the world where they put up signs reading "SALE! *HUGE DISCOUNTS!!" and the customers run away screaming in terror...

Perhaps I should be dumping my profitable shares of Nortel and redeploying them to GM. *I already own enough surfboards...
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Re: GM Bankruptcy fears
Old 11-16-2005, 09:50 AM   #12
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Re: GM Bankruptcy fears

To generalize-

The railroads went bankrupt in the 1970's
The steel companies went bankrupt in the 1980's
The airlines are going bankrupt in the 2000's
The domestic auto companies (fill in the blank...)

Big, stupid companies with shortsighted unions do not survive

Unfortunately, the union can do little to improve the stupid management. And the management can do little to improve the shortsighted union.
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Re: GM Bankruptcy fears
Old 11-16-2005, 12:00 PM   #13
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Gearhead Jim
To generalize-

The railroads went bankrupt in the 1970's
The steel companies went bankrupt in the 1980's
The airlines are going bankrupt in the 2000's
The domestic auto companies (fill in the blank...)

Big, stupid companies with shortsighted unions do not survive

Unfortunately, the union can do little to improve the stupid management.* And the management can do little to improve the shortsighted union.
Nice one.... but like you said, it was management that made the problems worse..

GM was making 'record' profits a few years back and did not pay down their pension liability nor thier outside debt... now that they are having problems... tough...

And the point of not buying things when there is a 'SALE' price on it...this not a product you can take and enjoy.. it is an investment and you can LOSE everything if it goes bankrupt... If I buy a car on sale, I still have the car... very different things...
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Re: GM Bankruptcy fears
Old 11-16-2005, 12:18 PM   #14
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Martha
Last spring, the bankruptcy talk for GM was that it probably had three years to get its house in order or it would end up in bankruptcy.* Now the talk is of shorter time frames.* I haven't heard much lately about the possibility of selling off GMAC.* If I recall, a little more than half of GMAC's business is auto loans.*
GM did recently talk about finding a buyer for GMAC. Their bonds jumped when that happened. I had been looking at some 9% coupons selling at 80, and they jumped to 95. They were a great deal at 80, and still a good deal at 95. I wouldn't worry about GMAC.
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Re: GM Bankruptcy fears
Old 11-16-2005, 12:23 PM   #15
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Texas Proud
...And the point of not buying things when there is a 'SALE' price on it...this not a product you can take and enjoy.. it is an investment and you can LOSE everything if it goes bankrupt...* If I buy a car on sale, I still have the car...* very different things...
I think the poster was saying that the stock market is the exception to the general impulse of people to run TO a sale of some item and to run AWAY when prices fall in the market; which is exactly the best time to buy stock...when they are down. I have seen that many successful stock market investors tend to sell into a market run up and buy when it falls. The average investor does just the opposite...fear of loss makes them sell on a declining market while they buy into a bull market. The end result is less profit in the longer term for the average investor.
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Re: GM Bankruptcy fears
Old 11-16-2005, 02:52 PM   #16
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Re: GM Bankruptcy fears

Quote:
Originally Posted by SteveR
I think the poster was saying that the stock market is the exception to the general impulse of people to run TO a sale of some item and to run AWAY when prices fall in the market; which is exactly the best time to buy stock...when they are down.* I have seen that many successful stock market investors tend to sell into a market run up and buy when it falls.* The average investor does just the opposite...fear of loss makes them sell on a declining market while they buy into a bull market.* The end result is less profit in the longer term for the average investor.*
I agree that if we are talking about the stock market in general, but we are talking about GM....

If I put a 'Sale' sign up on a car and said 'you can drive this car, but there is a 30% chance it will dissappear in a year and you will have nothing', I do not think you will have many buyers... this is the people running away from a sale... It is only when you have a strong belief that you will be able to keep the car and that it will not give you problems that you determine the 'value' was worth the investment...

I know, bad analogy.. but what else do I have to do
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Re: GM Bankruptcy fears
Old 11-16-2005, 03:59 PM   #17
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Re: GM Bankruptcy fears

Quote:
Originally Posted by Texas Proud
I agree that if we are talking about the stock market in general, but we are talking about GM....

If I put a 'Sale' sign up on a car and said 'you can drive this car, but there is a 30% chance it will dissappear in a year and you will have nothing', I do not think you will have many buyers... this is the people running away from a sale... It is only when you have a strong belief that you will be able to keep the car and that it will not give you problems that you determine the 'value' was worth the investment...

I know, bad analogy.. but what else do I have to do
Assuming this hypothetical car was a GM, I think you have made a very astute analogy. There is around a 30% chance the car won't be there after a year due to mechanical failure or falling apart. It is a GM after all...
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Re: GM Bankruptcy fears
Old 11-16-2005, 09:32 PM   #18
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Re: GM Bankruptcy fears

Quote:
Wow. I always considered the gov't pension part of my FERS comp package inviolable, even while acknowledging that SS would most likely have to change.
They are paid from the same source. I would guess that you will get your pension. I wouldn't count on the COLA keeping up with real life cost of living though. The budget deficits are already huge, and the boomers haven't even started to retire yet. China is willing to buy only so many treasury bills. When they stop, the printing press is all the politicians will have left.
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Re: GM Bankruptcy fears
Old 11-16-2005, 10:08 PM   #19
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Re: GM Bankruptcy fears

Quote:
Originally Posted by SteveR
I think the poster was saying that the stock market is the exception to the general impulse of people to run TO a sale of some item and to run AWAY when prices fall in the market; which is exactly the best time to buy stock...when they are down.
Well, yes and no. Yes for sure if what you are buying is something like an index fund. Not so clear when what you are buying is one business, even a very large one making very important products.

There appear to be lots of arguments why GM common stock may not be so hot now. It isn't because it is low; I like to buy low; just not everything that is low.* Doesn't mean GM may not go right back up, but remember, it can go bankrupt, continue to operate as debtor in possession, eventually restructure as a much smaller company making maybe Chevvies, Corvettes, possibly Cadillacs and a much smaller selection of trucks and SUVs. This reorganized company might or might not make any money, but it really wouldn't matter for today's stockholders, who likely would be wiped out or largely so in the re-org.

If you were sure it wouldn't declare bankruptcy it might be worth the gamble, but I don't see how anyone could be sure of that.

Ha
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Re: GM Bankruptcy fears
Old 12-09-2005, 01:53 AM   #20
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Re: GM Bankruptcy fears

I've been doing a LOT of financial reading. The other day
I read where someone (forget who) said in an article that
a GM bankrupty is "inevitable". Then, yesterday I read in
'Smart Money' that Ford Motor, GM, and GMAC long bonds
look like a good deal for "aggressive" investors. There was a whole
page devoted to this. I once said
that I would buy more (GMAC) if I had the cash.
Probably not now. Leaning toward land. Anyway, that bond
yield is way up there and GM is making a lot of moves to
stop the bleeding. Plus, they are sitting on a mountain of cash.
My guess is, even if the worst happens maybe I'll get lucky and be dead by then. In the meantime, those nice interest checks keep coming

JG
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