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Smart Money? Hardly

Posted By Barry Ritholtz On May 5, 2005 @ 6:33 am In Media,Trading | Comments Disabled

Since this is now front page news, further comment [1] is called for. My explanation for the Kerkorian/GM matter is pretty simple:

Before Monday, Kerkorian’s Tracinda Corp already owned 22 million shares of GM. I don’t know when he picked them up, but if it was anytime since January 2004, he’s upside-down in the trade. And 3.9% of GM is a substantial institutional position, not a trade made last week on a "Hey-GM-is-cheap" whim.

It stands to reason that he is buried in the trade: 

Wsj_heard05042005205332 [2]

Smart money? Maybe. Smart trade? Hardly.

Until yesterday’s ploy, that is. That position was looking mighty dumb, but some creative PR by KK — and Merrill Lynch upping their "Sell" to a "Hold."

But give credit to the crafty former greenmailer (recall his M.O. in the 80′s). If he wanted to, the 87 year old Kerkorian could have very easily upped his stake, quietly accumulating another 28 million shares or so — and probably done so on the down low at $27-29.

Instead, he worked the crowd like few others we’ve seen recently. The guy is old school, and I imagine that in the present highly regulated environment, very few people would have the chutzpah to do what Kerkorian did. Hey, I question the motives of anyone who shouts "I BID $31 FOR GM" — at $26 — when they are already long 22 million shares. That’s rather suspect.  But you gotta admire the sheer audacity (in another era, it was called "balls") of the manuever.

That said, its a function of how oversold the market was — and how many lemmings reside on Wall Street — that equities reacted the way it did.

Indeed, it was amusing to hear the pundits discussing how "this means value — it means that stocks are cheap," with lots of value to be unlocked.

With GM, at a market cap of $20 Billion, and over $200 Billion in long term debt, there ain’t a whole lot of value there. The value is the finance company — GMAC. Unless they spin out GMAC, leaving the auto company even more buried in debt, and probably unable to survive in its present form — there’s no "there" there.

~~~

 

The saying used to be, "What’s good for GM is good for America."

That needs to be edited for the 21st century.

Today, its:  "What’s ailing GM is what’s ailing America" Consider that GM has sagged under the exhorbitant costs of a broken health care system. The bill is an additional $1500 – 2000 in health care expenses added on to the cost of each auto. That’s as they compete with the Japanese — particularly Toyota and Honda — the world’s most efficient manufacturers of automobiles.

That’s like racing Jesse Owens [3] while carrying a 50 pound pack on your back. That’s a hopeless task.

Until GM gets the health care monkee off its back, they cannot compete effectively in the domestic automobile market.

>


UPDATE May 5, 2005 5:47pm

Mea Culpa:  According to the Schedule TO, filed with the SEC by Tracinda Corp, they do in fact own 22 million shares at an average cost of approximately $26.33. My assumption is if its in an SEC filing, than I expect it to be accurate.

That doesn’t mean they haven’t lost money in any related GM trades before — but I gotta Mea Culpa on my statement that Kerkorian is buried in the stock . . .

>


Source:

Explain This: Kerkorian and GM [4]
By Gregory Zuckerman
Wall Street Journal, May 5, 2005; Page C1
http://online.wsj.com/article/0,,SB111525425369425354,00.html


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URLs in this post:

[1] comment: http://bigpicture.typepad.com/comments/2005/05/bet_the_jockey_.html

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/wsj_heard05042005205332.gif

[3] Jesse Owens: http://www.jesseowens.com/jobio2.html

[4] Explain This: Kerkorian and GM: http://online.wsj.com/article/0,,SB111525425369425354,00.html

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