GM: Are We in Looneyland? 23 comments
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When a market rally drags a firm's stock that has declared bankruptcy, and which has filed a plan that will result in the effective total destruction of its common stock, into the green by 20%, you know we live in looneyland.
That would be GM, which opened down at 50 cents but now is trading at 90, up fifteen cents from Friday.
Note that the common is worthless; the prepackaged bankruptcy and Section 363 sale will strip all of the value from the current GM and transfer it to the new GM.
The "old" GM will have a negative net value, which means the common stock (which represents "old" GM) is worth exactly bupkis.
Yes, this is all daytraders playing around - I get that.
But I'd like anyone to explain how GM's common stock has any value in it whatsoever, and is trading on anything more than pure hype on a big up day.
Good luck with that analysis.
Disclosure: No positions material to this idiocy.
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I've NEVER seen that before. Typically these stocks are immediately delisted and re-open on the pinks. That's the RIGHT thing to do.
Forcing buys in a company that has declared bankruptcy as a consequence of index membership is not only idiotic, it's criminal.
If a firm goes into bankruptcy the value of its NOLs is impaired as noted in IRS code 382. While the losses are still officially on the books, the company takes a valuation allowance on the date of the impairment and is only allowed to use a fraction of the valuation allowance (I believe it is 5%) annually. Since the NOL carryforward period is 20 years, you can only end up using $500 million of tax losses over the 20 year period (despite the fact they have billions).
If you don't use the tax losses in the carryforward period they expire worthless.
There is no prescription against stupidity.
Just talked to a 'techie' friend and he says that the anomaly is in all likelihood a direct function of quant fund trading. The computer driven models at quantitative funds think this stock is a good buy! These models have recently stopped working causing their owners pain and requiring chasing tracking errors.
On Jun 01 11:55 AM Karl Denninger wrote:
> What makes no sense is why they allowed this to open on the NYSE
> after the filing was made.
>
> I've NEVER seen that before. Typically these stocks are immediately
> delisted and re-open on the pinks. That's the RIGHT thing to do.
>
>
> Forcing buys in a company that has declared bankruptcy as a consequence
> of index membership is not only idiotic, it's criminal.
Now that GM has filed for bankruptcy. And its stock has NOT dropped to 2 cents. So you have been WRONG.
Please have some decency to admit that you were WRONG, or at least dig a hole and climb into it.
Your first Seeking Alpha Article predicted that GM share shall drop to 2 cents, the very next morning, due to massive dilution, as per your calculation. I immediately pointed out the fraud in your math, before the market even open the next day.
You were wrong and then you came back to change your own word and claimed that you predict GM share drop to 2 cents because of bankruptcy, not because of dilution. Fine, but I said you were still wrong. Now today GM bankruptcy is factual and the share has not dropped to 2 cents. You MUST admit being wrong now!
I have no vested interest in GM one way or another. Just want to set the record straight. BTW, how is your investment fund doing, Karl, since the start of the year, and since the start of March?
My portfolio is up a full 10 fold, since the start of March. That is absolutely true (I can send you a copy of my account statement if you doubt it). You laughed at me when I said my favorite mining share, SWC, can reach triple digits in 2 to 3 years. And you banned me for making that prediction. I shall laugh at you when I reach my predicted goal, in 2 years. You were shorting everything up to your neck in today's market, as you claimed?
I enjoy many of your very insightful articles. You were smart and you were actually right in many things, but at the end of many articles you often jump to the wrong conclusion, even though you get many facts right. Too bad you were too marrow minded to listen to different opinions and think logically.
On Jun 01 12:11 PM Iconoclast421 wrote:
...I picture the conversation going something like this: "The
> market is going to need a major boost of confidence when GM declares
> bankruptcy, otherwise we could be looking at a major panic. You guys
> need to take whatever steps are necessary to ensure that the market
> doesn't crash when GM declares bankruptcy." God only knows how much
> money they spent to make this happen.
Iconoclast:
That would explain the 5-minute blowout at the close last Friday. But, how do you explain the follow-through today? Don't get me wrong; I'm with you on this. Are we witnessing the "murder" of every single short in the name of propping up the market temporarily?
On Jun 01 12:11 PM Iconoclast421 wrote:
> maybe even from the president
> himself. I picture the conversation going something like this: "The
> market is going to need a major boost of confidence when GM declares
> bankruptcy, otherwise we could be looking at a major panic. You guys
> need to take whatever steps are necessary to ensure that the market
> doesn't crash when GM declares bankruptcy." God only knows how much
> money they spent to make this happen.
The stock is in fact worth zero - not 2 cents. It will be cancelled when the "old" GM winds down and liquidates, which it will following the Sec 363 sale.
I didn't change anything - I said if GM **survives** it would be worth 2 cents based on dilution in the plan filed; in a BK the common is nearly always worth zero, and in this case, a 363 asset-strip, it will be zero.
Trade it if you want, but if you were long the time to sell it was, in fact, right around when I posted that article.
Unless of course yesterday's price - at less than half of when I posted my alert - is somehow "better".
You were banned for refusing to follow the rules at Tickerforum. You can continue to come beat your chest here if you want, but it doesn't change a thing there, nor will it. Ever.
PS: Speculators can and do drive prices somewhether other than their economic value for quite some time. However, that doesn't change the economic value, and ultimately fundamentals always win. There is a difference between investing and speculating - something often lost with a lot of people's perspective, often leading to their ultimate destruction in the markets.
On Jun 01 12:55 PM Mark Anthony wrote:
> Karl:
>
> Now that GM has filed for bankruptcy. And its stock has NOT dropped
> to 2 cents. So you have been WRONG.
>
> Please have some decency to admit that you were WRONG, or at least
> dig a hole and climb into it.
>
your comment is nice, its just ashame none of it its truth, since you copy/pasted from another boarder where this same comment made a lot of repercution..
but anyway, you are a hedge fund trader, I expected to see lies..
or.. you being a h.fund manager is another lie ?
oops
On Jun 01 01:45 PM Mad Hedge Fund Trader wrote:
> Here its called LALA land. I'll tell you what GM's problem is. My
> dad was a lifetime GM customer, religiously buying a new Oldsmobile
> every five years. Once he even flew to Detroit for a factory tour
> and drove his new prize home. Thirty years ago I told him he was
> doing GM no favors by buying their cars, and the only way to force
> them to improve a tragically deteriorating product was to buy better
> made German and Japanese vehicles. This was right after the State
> of California forced auto makers to install seatbelts on new cars.
> Airbags and ABS brake systems were still years away. His response,
> "I didn't fight the Japanese for four years so I could buy their
> cars." (He was a Marine). GM's problem is that my Dad passed away
> seven years ago. Of the original 17 million WWII veterans, 1,500
> a day are dying, and there are only 1.5 million left. All of them
> loved Detroit because it built great Jeeps, Sherman tanks, and half
> tracks that brought them home from harm's way. Their kids prefer
> German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles.
> It is no coincidence that GM's problems really accelerated with the
> passing of the "greatest generation." During the last 35 years, when
> Japan's share of the US car market climbed from 1% to 40%, I begged
> GM to mend their ways and build a quality, price competitive product
> that Americans wanted to buy. They answer was always the same: "Nobody
> can tell GM how to build cars." Maybe someone should tell them.
This will create yet more distortions. If you're into playing on the pinks there's opportunity for daytrading there - I have no intention of doing so, but some readers might want to take a dice roll.
Just don't hang on too long :)
PS: I made the mistake of thinking that there would be "recovery value" in the common of MCI/Worldcom back in the day. I have the trade confirms to prove it, and I keep them around to remind me of how eating the crow of a 100% loss tastes.
Based on discounted future earnings or discounted free cash flow, GM stock is worth ... ?
On Jun 01 12:55 PM Mark Anthony wrote:
> "Karl:
> Now that GM has filed for bankruptcy. And its stock has NOT dropped to 2 cents. So you have been WRONG.
> Please have some decency to admit that you were WRONG, or at least dig a hole and climb into it".....
I was hoping for getting 100 shares of GM at 2 cents for souvenir. Oh well now I have forever lost the chance to obtain some souvenir share of GM.
You still have not told us precisely what position you were shorting up to your neck. The past few months have been some of the best bull months in history and you were all shorts and no long?
On Jun 03 04:28 AM Mark Anthony wrote:
> Karl:
>
> I was hoping for getting 100 shares of GM at 2 cents for souvenir.
> Oh well now I have forever lost the chance to obtain some souvenir
> share of GM.
>
> You still have not told us precisely what position you were shorting
> up to your neck. The past few months have been some of the best bull
> months in history and you were all shorts and no long?
Where did you read that? From a disgruntled, banned ex-forum member?
I was long in size from within 10 pts of the 666 low up to around the 870 level in the SPX, where I started selling out of positions. There were a number of clean doubles or more taken, with many others radically up as well (e.g. TXT, AA, even BAC and C believe it or not.) The archive of my daily market commentary is in "Ticks" on Tickerforum, available to gold donors. Those threads never die; they are literally blow-by-blow comments on nearly every trading day, and most of the time - unless the market is just being too nuts for me to trade and type at the same time - I post when I do things. There is also the nightly video that I put out but those aren't kept around simply due to the filesize (~300MB/day is the usual across the various formats.)
At present I am lightly net short (~10% of risk capital) but not committed to the position; on a RISK basis the long side of the trade is over. That doesn't mean the market can't go further - it simply means that you're now trying to chase something that has run the majority of its course, which is nearly always a bad idea. I'm short-term position trading (down to daytrade time frames) at present simply due to where the tape is; once it shows its intentions I will commit more fully. I want some short-side skin on here as from a technical and fundamental perspective this has simply come too far, too fast and history says that failures from those sorts of parabolic blow-offs can be both vast and fast, making it very hard to find a good entry. If the market tries to take off again north I'll take the positions down and put them back on at a higher price - as of this evening they're roughly flat in terms of unrealized P&L on an aggregate basis.
You were heavily, not lightly, shorting everything, you said so on your forum "Disclosure: Short the broad market."
By virtue of shorting everything, you are a big, concentrated LONG on US dollar, and that is a deadly wrong bet in current market place. It is odd that people like you would be a strong US dollar bull and commodities bear. You get almost all the facts right but then draw almost every conclusion wrong.
Jim Rogers recently said he has zero short positions in anything at all. That's rare for him to not short anything at all. He is right. The only thing worth shorting is US dollar. The correct way of shorting US dollar is use your margin buying power to massively buy up commodity positions and ride it up.