GM Shares Just Won't Quit

Looks like GM (GMGMQ.PK) shares, now shares for Motors Liquidation Company, just won't quit, even after management said that the shares will go to zero. We wrote about this previously, and did a bit of investigation into the message boards. Despite the likely scenario that equity holders won't have anything to claim, the shares have actually rallied strongly from their $0.27 lows, given they were at $1.16 last Friday. Very peculiar, and basically being written about as foolishness across the board, but buyers have made money.

Is there any logical argument, or is this just penny-stock froth? Even if one were to view the shares as options as an outlier scenario whereby equity holders are actually left with something after creditors have their way, to me even if this were 1 in 100, the odds wouldn't make sense. If we assume $10 is where they go, should some sort of value be left for them (this is just a number thrown out there, they were back here in September 2008), then the price would be fair for about a 10% (10% chance for ~10x gain) probability. But 10% seems pretty high for what looks like doomed shares given the amount of creditors which come before them and management basically saying the shares will not recover any underlying remaining value.

If there was a 10% chance, one would imagine that management would unlikely be so direct. Thus if one believes the shares have 1 in 100 chance of recovering value, then you are expecting them to go to $100 if buying at $1? Seems like any way you slice it these shares don't make sense, but heck I'm sure a few short term traders who've made money will be laughing at this post. Interesting stuff.

They’re worthless. But that message about shares in Motors Liquidation Company — known before 6:30 a.m. on Friday as General Motors — doesn’t appear to have sunk in yet. Shares in the company, which contains the remains of G.M. and which will be liquidated over time, were trading up nearly 40 percent on Friday at $1.16 as of the writing of this post.

Comments

[rh13:]

There are many subtle errors in the reporting of the GM matter that have led to the impression that the shares might be worth something some day and there are apparently enough people who don't read carefully and have a dollar a share or so to spend on shares to give them some value at present. We read of the "emergence" of General Motors and of the "survival" of GM. A headline within eyesight as I write this refers to GM as "ready for a rebound." These words are serious misconceptions. The "new" General Motors has no relationship to the old General Motors, in terms of ownership or investment results. The "new" General Motors is just a collection of the assets of the old General Motors. It is owned by different people, not the stockholders of the old GM. The "new GM" owners are not offering stock for sale at present. The old GM has a new name; most of its assets have been sold, creditors are waiting for payments, and stockholders will receive something only if the creditors are paid in full. That appears unlikely, and more unlikely with each passing day. Buying the stock, when it appears fairly sure that it will be worthless soon, seems very strange to me. The old GM does not even own the brands any more, which were the only things that might have had enough value to make the stock worth anything at all.

Jul 13 10:02 AM

[osamaobama:]

What is there to "understand". From the time of the "TULIP MANIA" til today, there have been "bubbles"....the idea is not to get caught on the wrong end of the bubbles.

Jul 13 10:16 AM

[GoochyPuppy:]

What about options expiration this Friday??!!!
It seems very irresponsible for this stock to be halted during OPEX week.

It should have been permanently halted when the bankruptcy was announced (or halted for a day or two AT THAT TIME to let the news spread).

But during OPEX week??? What the bleep!?

Jul 13 11:03 AM

[Shumann's H...:]

Why are there no sales being recorded on this stock today?

Jul 13 02:06 PM

[grey road:]

lol.. good one! you are kidding ... right?


On Jul 13 02:06 PM Shumann's Horse wrote:

> Why are there no sales being recorded on this stock today?

Jul 13 02:14 PM

[zorro6204:]

So far as I am able to understand, I believe the price of old GM is related to the July options, and once those are done, the stock should fall to near nothing (plus a dime or two for random motion). I don't believe the stock price is "real".

Jul 13 02:37 PM

[GoochyPuppy:]

Zorro... I agree with your comment, particularly in the past few weeks (including June) that GMGMQ was likely manipulated to fleece the $1 put holders and $1 call writers.

However, the current "limbo" is crazy. I am one of the $1 call writers for JULY, but with trading halted, I can't do anything to attempt to evaluate and manage this position.

A halt during OPEX week is unacceptable.

Jul 13 03:34 PM

[woollyB:]

The efficient market hypothesis had a fork stuck in it a long time ago. Reality makes a mockery of EMH.

Jul 13 09:11 PM

[highriskhig...:]

I for one thought that GMGMQ.PK was for the new company and not the old, which was under GM. I was concern that it might still be the old company so I dipped in just a little. I was ahead by 5% so I was a little relieved.

I would agree that if a company declares bankruptcy its stock should be removed from all boards and trading should be stopped. I see that it has stop trading today, but if it starts up under the same stock listing I will sell. If not, hopefully I can use it to offset my returns on TRW.

Jul 13 10:50 PM

[Vincent Fer...:]

Highrishhighreturn:

Not all companies that declare bankruptcy will necessarily have their stock go to zero. It depends on whether or not there will be remaining value left over for equity holders once creditors have satisfied their claims.

Also, I think your buying of the shares tells us something about the kind of activity in the stock right now.

Jul 14 01:10 AM

[Moon Kil Woong:]

The greater fool theory lives on as the greatest fool out there theory. That or some back street government pandering is going on to use taxpayers money improperly again. After all the Treasury still has TARP, the Fed can backstop anything with the taxpayer as the ultimate fall guy, and Congress could care less about fairness. With this slew of crooks anything is possible. I suppose that's why the market is so unstable and uncertainty rules.

Jul 14 05:54 AM

[BloggingBanks:]

That's really funny. I recall when Delta was in Ch 11, its stock went to $3 when during the later part of 2006 and early 2007, US Airways Group, holding company for US Airways, proposed an acquisition of Delta Air Lines. The combined entity would have been operated under the Delta name. This attempt was withdrawn after failing to gain support from Delta's major creditors and opposition by Delta management. Old Delta Airlines stock fell to zero, and the company emerged from bankruptcy in 2007. The "old shareholders" were wiped out. I think old GM is still trading at $1 since it is almost impossible to sell short the stock.

Jul 14 05:58 AM

[casey00001:]

Vincent:

Doesn't matter wheter it goes to Zero or not. One day it just stops trading and its worthless. If you think I am wrong, its exactly what happenned with the old Kmart stock and the original Stock for Marvel Comics. Kmart merged with Sears and issued new stock and Marvel became Marvel Entertainment and issued new stock. Original stockholders got Nada.


On Jul 14 01:10 AM Vincent Fernando wrote:

> Highrishhighreturn:
>
> Not all companies that declare bankruptcy will necessarily have their
> stock go to zero. It depends on whether or not there will be remaining
> value left over for equity holders once creditors have satisfied
> their claims.
>
> Also, I think your buying of the shares tells us something about
> the kind of activity in the stock right now.

Jul 14 09:09 AM

[Maxe Paul:]

People still need to cover their shorts on the stock, therefore it will continue to trade up until the final day. You are witnessing a short covering rally.

Jul 14 10:03 AM

[Gem Hudson:]

1 trillion dollars of deficit spenidng over that of this national gross product not only can not pay off the debt. They will monetize the debt and all that Hara Guru Obama is stimulating is a crash currency.

The only growth is hyperinflation. Is China going to dump the dollar quietly? Can all their voodoo shuffling save their welfare state? But China is going to get a new reserve currency. Is it their euro dollar or their wane? Because they say so. 3900 dollars of gold for one of their euro coin is the going price but can you cash it so?

Jul 14 10:46 AM

[hsofiak:]

Any thing to do with naked shorting?

Jul 14 12:43 PM

[kohalakid:]

You are incorrect. People do not need to cover their shorts.

Think about it.

If you are short GM from $20 and cover it at $1, you have a gain of $19 and owe tax. If you don't cover and close out your trade, you don't owe tax unless you are a mark-to-market trader.

Borrowing rates for GM stock have been astronomical and that does complicate this equation a little bit.....

On Jul 14 10:03 AM Maxe Paul wrote:

> People still need to cover their shorts on the stock, therefore it
> will continue to trade up until the final day. You are witnessing
> a short covering rally.

Jul 14 01:30 PM

[Did U Think...:]

What are any shares worth which do not pay a dividend? Nothing. The whole stock market is a big game of hot potato - handing worthless assets back and forth until they burn you. People trading GM shares are proof positive of this. As long as there is someone willing to buy them in hopes of finding a greater fool then there will be a market for them. Is it really any different than when Enron was bankrupt and everyone continued to trade its shares as if they had value. More recently, anyone who doesn't know WFC is completely insolvent is a damned fool. Yet the shares trade in the 20s. I was warning people on the Yahoo chat board for AIG that it was going into the sub $5 range when it was trading in the 40s.

Until they stop people from trading they will trade because this is all gambling now, not investing. You want more evidence that this is all just gambling? You can trade based on how much rainfall you expect or chances of snow. Are there any tangible assets associated with that? NO! It's just gambling like the rest of the ponzi stock market. It will collapse in a couple years as all the suckers get completely fleeced and start to figure out there are better ways to spend one's hard earning money than in a corrupt gambling pit which is lined with preordained winners backed by the government.

Jul 14 02:53 PM

[Shumann's H...:]

Thanks for your help.


On Jul 13 02:14 PM grey road wrote:

> lol.. good one! you are kidding ... right?

Jul 14 04:20 PM

[User 423478:]

What do ya'll think about VISTEON CORP, VSTN ?? Take my 11 cents and run or could it be a penny trade to ???

Jul 14 10:49 PM

[JLarkin:]

I have read several places that the new GM will include a 10% stake for old GM stockholders. Perhaps that is why the price > 0.

Jul 15 08:35 AM

[User 448129:]

You can no longer trade GMGMQ online. It does not exist. You have to go through a broker to convert your old GM stock to new MTL stock. MTL is not available to the public, and won't be until 2010. I did that and got 1/2 my money back this morning. Old GM is worthless, and will no longer be traded.

Jul 15 10:51 AM

[kohalakid:]

The new symbol for the old GM stock is "MTLQQ" and represents the old bankrupt GM. The shares will go to zero.

The "new" GM is owned by the US govt and the unions, etc etc.
There is no issued, tradable, listed stock.

Jul 15 05:49 PM