31October

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

As long as GM does not file for bankruptcy, bondholders will continue to receive full payments, regardless of market price. That keeps a floor under our bond prices.

On positive notes, GM will be temporarily bailed out because:
1. People would be really mad if Wall Street bank bosses got bailed out, and manufacturers did not.
2. Although Chapter 11 would allow a permanent fix, people PERCEIVE the sudden layoffs as being more expensive to taxpayers, and politicians will dodge it.
3. Politics in the Rust Belt is made for supporting the UAW. Politics outside the Rust Belt are non-sequitar, since we have one-party-rule effective 20 Jan.
4. When I was a fiscal analyst, I ate lunch monthly with reps & senators (fed & state.) The government is going to do a bailout. It is how they think. It is all they know. It does not matter what we showed them. They will throw money at GM at least twice.

But the loan has no lift on your XGM or my BGM price because:
1. GM does not have the long-term ability to pay the coupon. GM bonds have the lowest credit rating possible. GM went from “bankruptcy is not an option” to admitting that their cash position will be less that the level needed to operate in the first quarter of 2009, plus they will need $4 billion in cash before next week.
2. GMAC is about to go belly-up. According to Barclays, if GMAC were to fail, GM could need an additional $9 billion to $13 billion in funding to supply financing to its dealers.
3. There are indicators that bondholders will be damaged one way or another.

Chapter 7 bankruptcy would mean liquidation of everything for pennies on the dollar. It will not happen.
GM has problems that no amount of bailout can fix. Chapter 11 prestructured bankruptcy would allow GM to operate. This scenario WILL happen. No congressional appointee is going to talk creditors and the UAW into taking one for the team, which is why there will be a bankruptcy. Bond payments could be slashed. If the bonds were called, it would be for pennies compared to par. We might be forced to exchange bonds for new stock. A court will decide which creditors will be paid, how much, and when. Members of both US parties are commenting on prearranged bankruptcy. The bright side is that we creditors would have first crack at the crumbs on the floor.

Here’s the crazy part: It probably will never be a declared bankruptcy, but a de facto one from a government “loan.” If the government gives GM loans, even outside of bankruptcy, it can mandate a change in the terms provided to bondholders. They can allow the restructuring that mirrors a Chapter 11 bankruptcy reorganization without declaring it.

[[Without Chapter 11-ish conditions, a bailout cannot work, so there would naturally be another bailout. The second one also cannot save GM, and Americans will get mad at Congress. Congress would discontinue the bailouts and then GM could go into real bankruptcy.]]

Some bondholders might sue: My The Financial Times RSS says large GM bond holders like PIMCO are fighting parts of GM’s recovery plan. “… Bond holders have nothing to gain from swapping for equity in an unsustainable capital structure, he said.”

I am extremely jittery about playing with nitroglycerin/GM bonds in a rough market. But don't dump your shares. The gov-mint will print yet more cash before asking for austerity measures.

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

Ah, it was a ploy - the president offered $9.4 billion to General Motors, and Treasury Secretary Paulson said Congress should authorize $350 billion from the financial bailout fund. If automakers fail to produce a plan by March 31, they must repay the loans...
...Or Congress could forgive the loans and issue more debt, as they do.

Greg Weston is a prescient genius.

If anybody looks at this article again, are there any calculations on the impact to GM cash flow from this:
seekingalpha.com/artic...

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

Uh-oh:
..."the White House signaled an "orderly bankruptcy" remains under consideration."... "There's an orderly way to do bankruptcies that provides for more of a soft landing -- I think that's what we would be talking about."...White House spokeswoman Dana Perino.

A prestructured bankruptcy was the best solution, but I was certain they'd bail out on the third-fourth try. I have worked in government long enough to know that the officials will always throw the money away - I mean, make budget allocations.

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

Although GM could get out of warranties, the court (especially under Democrats) would likely order GM to honor them. Also, it would be corporate suicide to not honor customer warranties.
The job loss would actually be less with bankrutpcy; it would just be violently sudden. They are currently under contract with the UAW to hire and rehire unneeded workers, even on shuttered lines!
And the Midwest banks who made loans to a risky borrower should bear the same risk that I do. If they go under, the assets will be bought by a smarter bank.
My BGM dropped another 12.61%...
I see a lot of pointers in the bankruptcy direction.
I really, really hope you are right.

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

Mr. Weston,
The CO2 per BTU of naural gas is extremely low, since every carbon atom is conneced to at least one, and as many as 4, hydrogen atoms. It contains many times the energy of H2 without the drawbacks. It is the only rampable and fast-adjusting compliment/backup to solar and wind. I wish T. Boone Pickens would shut up so that I could buy in. But I have no money to do so because...
...I own BGM, similar to the XGM you recommend. If they got AAA credit rating, then I would be rich. But General Motors MUST accelerate UAW benefit changes, renegotiate debt, lay off, merge divisions, and close dealerships. Bankruptcy is the only way they can do what has to be done. I think the Obama administration will be forced against its will to allow bankruptcy. I hope for my children's Christmas that you are right, and that I am wrong.

And I thought they were distressed when I bought them!

Trading Obama: Solar Stocks, GM Debt, Ambac Calls, Lorillard and Goldman Puts

Mr. Weston stated:
"Solar is most directly in competition with coal and natural gas, both dirty power sources on which we will soon see new taxes and regulations."...

WHA, WHA, WHAAATTTT??? Coal is filthy, but in a closed, filtered, recycled system, there is very little pollution. The USA and China have tons of the stuff, rely on it for the grid; and taxing it would jack up utility rates. Political suicide rarely happens on that grand of a scale.

Natural Gas is one of the cleanest-burning substances on the planet. You can direct-drive a turbine with an almost 100% clean burn, then use a heat exchanger to steam-drive another turbine with a closed-loop system. N.Gas plants fire up and shut down quick enough to compensate for surges and drops from the solar & wind power supplies. There are no toxic wastes from N.Gas as there are from solar production. You get it from the local dump, thus reducing methane, which is a FAR, FAR more potent greenhouse gas than CO2. There is no soot, birth-to-finish CO2 production is a fraction that of pure hydrogen, it uses no farmland, we and our UAE allies have tons of it... I could go on. That sounds better than:
..." the Washington Post reported that Chinese solar-silicon companies were dumping toxic waste. Luoyang Zhonggui High-Technology Co., which was cited by the Post as a prime example, sells silicon to Suntech Power..."

The premise of solar competing with dirty fuel is not quite accurate. I am very long solar, but only because of business reality, a belief in multi-tiered power supplies, and hope.

Science, however, supports CLEAN-burning natural gas and modern coal plants for a couple more decades.

Also, the premise of buying STP because they are American is not quite accurate. They are headquarted at 17-6 Changjiang S. Rd., New District 214028, Wuxi, Jiangsu Province, China.

I do like the rest of the piece, though.