Market Talk

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

General Motors is the single greatest company that has ever existed. Every American should go out today and buy a GM car, buy two, and buy GM stock, and a GM baseball cap, and GM teddy bears, and…whoa, settle down, fella. Excuse me, there, got a little caught up in the hype.

GM, the company that once was the very definition of industrial America, and then became one among the many very definitions of corporate America’s failure, is back in the public market today, courtesy of a very big, very well-hyped IPO.

Shares are up in the 7-8% range this morning in its initial trading, but the real trick will be to see where the stock is at the closing bell. And the closing bell after that, and the closing bell after that, and the closing bell after that. But for now, this GM thing is being celebrated as a true success story.

But let’s not kid ourselves. GM still has a lot of hurdles. This isn’t some Google, some hot tech IPO for a company with a seemingly limitless future in front of it. This is a failed car company that is trying to get back into a highly competitive business, both here and overseas. We already know the very probable limits of what GM can achieve in an industry where the major competitors are Ford and Chrysler (I know, it’s Chrysler, still,) as well as Toyota, Nissan and Honda. Still, that’s not the main focus today.

“This was the single best decision of the bailout era,” Barry Ritholtz writes about GM over at The Big Picture. “It seemed to be the only decision that was not made in a panic. It adhered to the rules of capitalism — when your company is insolvent, it goes into reorganization or dissolution. The brutal, Darwinian rules of the market and of bankruptcy applied — not the influence of lobbyists, or special favors from Senators.”

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- Soaring currency trading volume won’t have a happy ending. “It is a Fool’s Goldrush and will end horribly for most,” Josh Brown writes at The Reformed Broker. “The good news is, you can take the cautionary tales of the stock game, the mortgage game and the real estate game and figure out how you want to be positioned when the inevitable boom-bust-hatred cycle shifts into high gear.”

- Former Lehman CEO Dick Fuld was given a “surprisingly sympathetic ear” from the FCIC at yesterday’s hearing. “This is a deeply disturbing development,” Barry Ritholtz says at The Big Picture. “It leads to the unfortunate suspicion that the FCIC does not have the slightest clue as to the causes of the housing collapse, recession and market crash…I now fear the FCIC report is going to be an ideological farce.”

- It’s becoming obvious there is “no magic bullet” to immediately speed up the recovery, Harvard economist Kenneth Rogoff writes. “It took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” he says. “Americans will have to be patient for many years as the financial sector regains its health and the economy climbs slowly out of its hole.”

- Investor demand for US Treasuries has waned over the last few sessions after some better-than-expected economic reports. But the “big test” comes tomorrow morning with the August nonfarm payroll report. “A smaller loss of jobs could stoke more optimism about the economy and raise more questions about how much lower interest rates can or should go in the near term,” LA Times’ Tom Petruno says. “But a bigger loss could re-energize bond bulls.”

- Yesterday was a 90% upside day, “the 13th such so-called panic-buying day since the April 26 high,” Jeff Cooper notes at Minyanville. Meanwhile, there’s been 14 panic-selling days during the same period, he says. “This kind of volatility is a market in disarray. It’s not a sign of a healthy market,” he says. “Risk runs high when frenzy runs deep.”

- Slate’s James Ledbetter wonders why people consistently underestimate Netflix (NFLX). “There is one company that has been more consistently underestimated than any other, whose innovations, growth, and, indeed, survival have been dismissed and denied for nearly all its corporate life. That’s Netflix,” he says. But “while its critics were flailing away, the company has continued to grow steadily and spread its influence well beyond the red envelope.”

- AOL renewing and expanding its search agreement with Google (GOOG) was a “surprisingly quick and even stealthy move,” Kara Swisher reports at All Things D.

- “Summertime, and the living is easy…for many, too easy. This July was the worst on record for youth employment: Less than half of all 16- to 24-year-olds had a job,” WSJ’s Heard on the Street says. “Meanwhile, at the other end of the spectrum, more than 40% of over-55s have work or are looking for it, the highest share since JFK was in office.”

- Housing prices still need to drop by 10% in order for the market to correct itself, Barry Ritholtz tells Tech Ticker.

- For all the runners out there, WSJ’s Nick Wingfield reviews three running apps.

Just when I thought I could not possibly get more outraged by anything I hear about government bailouts, I read this from the Times:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Societe Generale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

Um, excuse me? Am I to understand that the U.S. government, which was about to hand over nearly $200 billion to AIG, forced it to agree not to sue any of the banks it owed money to, even if it should it later find out that any of them committed, oh, you know, fraud? Is that what my government brokered?

This is the kind of agreement that, say, a corporation might make one sign when they’re letting you go, but giving you a little severance package, know what I mean? Why in the world would the U.S. government, which was about to fork over an almost unheard of amount of taxpayer money, want to force to AIG to give up any legal chance to recoup any of that money? It would make sense if it was the banks forcing that issue, but for the government to…

A-ha! A-ha!

“Another way to read this requirement is that the Fed and Treasury were opposed to having fraud at the banks exposed, period,” Yves Smith writes at naked capitalism. “That is a very troubling stance for bank regulators to take.”

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I knew there was something screwy about that $6.7 billion loan GM said it paid off. They made a big show of it, announcing that they were going to announce it, then announcing it, then running a commercial announcing it again. I believe the story made the front page of the Journal, a sign that taxpayer money wasn’t wasted on a failing enterprise.

Ha! As the Times’ Gretchen Morgenson reports, GM paid off the loan with funds from a taxpayer-financed escrow account at the Treasury, not because people are out there snapping up Camaros (although I have to say, the new Camaro is the best-looking car to come out of Detroit in decades.) From Morgenson’s story:

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.

Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Does that just beat it all? All that show, all that crowing, and all they were doing was shuffling some money around. And we still hold $2.1 billion in preferred shares and 61% of the common, the acquisition of which essentially was another bailout.

General Motors once upon a time had something like a 50% market share, maybe even more. Not the U.S. market – the world market. Today the company is a shell of itself, a pale shade of the glory days, the days of shark-fin tail lights and white-wall tires. And while I personally think some of the cars it makes are really nice, like the new Malibu and the Camaro, I just wonder if too much damage has been done for the company to ever really recover, and if somewhere down the line we’ll be confronted again with a choice of either bailing the company out again or letting it go the way of the Edsel.

Did GM have a near-death experience, or did it actually die and we’re just animating a corpse? Maybe all we bailed out was an image of that old GM, back when it ruled the world. But those days are gone for GM, and they’re not coming back. And if Americans don’t start facing up to the very real issues surrounding them, the glory days for the nation will pass just as surely.

- It looks like speculators are finally tiring of Motors Liquidation (MTLQQ), the shell company of GM, Tom Petruno writes.

- AOL shares yesterday hit their highest level since the November spinoff, with gains likely attributed to the decision to sell or shut down Bebo. “While the failure of translating its Bebo acquisition into any kind of success is pretty clear, perhaps the complete disaster does have some silver lining,” Kara Swisher says.

- Betting consumer spending will eventually return to peak 2006-07 levels may not be the safest assumption. “It is a mistake to extrapolate forward a continued recovery in spending from the depressed levels of 2009,” Mish writes. “It is far more likely, this is about all we get.”

- Initial jobless claims seem to have stabilized, with this morning’s report showing claims ticked back up to 460,000. “Unfortunately, they’ve [stabilized] at a level well above pre-recession norms,” Economist’s Free Exchange blog notes.

- Chuck Prince and Robert Rubin “didn’t do themselves any favors” in front of the Financial Crisis Inquiry Commission this morning, Felix writes.

- Dan Frommer isn’t exactly impressed with Apple’s (AAPL) iPhone OS 4. “Nothing Apple announced today was unexpected or surprising. Nothing couldn’t be copied in a good-enough-for-most-users fashion by Google (GOOG) or Microsoft (MSFT).”

- Apple’s (AAPL) real goal for its new ad network: keep developers happy, MediaMemo blogger Peter Kafka says.

- “It’s not just the housing sector that is driving the recent disinflation trend,” Atlanta Fed’s macroblog says.

- The Greek economic situation is worsening fast — with government bond yields rising rapidly today,” Simon Johnson and Peter Boone write at The Baseline Scenario. “Unless there is rapid action by the international community, this has the potential to get out of control.”

- Have no fear, history suggests economy’s poised for a strong recovery, Floyd Norris says.

It's alive!

Would you let Lehman Brothers manage your assets?

So not only didn’t anybody seemed particularly perturbed by the Valukas report on Lehman Brothers’ nefarious book keeping, but reports today have the company, get this, reforming as an asset manager.

Yes, the people who brought you Repo 105 and other great hits want to transfer the company’s remaining assets to a reorganized asset manager, currently being called LAMCO (they couldn’t have squeezed an E in there after the M?)

“The concept is we built an enterprise. The idea is can we capitalize on it? The answer may be no or it may be yes,” said John Suckow, Lehman’s president. The point of the new company would be to manage the assets in order to pay off the $875 billion in creditor claims.

The company didn’t put a value on its assets, but if they’re having trouble making their numbers, we’re sure they’ll come up with something creative to bridge the gap.

The plan needs to be approved by the bankruptcy court. It doesn’t appear that LameCo, er, LamCo, would be looking to drum up new business. At least, we hope not.

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Repo 105? Yeah, let's do 105. And 106, and 107, and 108, and 109...

So I had some things I wanted to write about, Jon Kyl’s pathetic bashing of the unemployed, the parallels between Greece and the states of the United States, the continued foot-dragging on financial reform, but this Lehman report thing, well it’s jumped to the top of the charts — with a bullet. There are so many things to talk about with this report it’s hard to know where to start.

Let’s start with the five W’s:

A scathing report by a U.S. bankruptcy-court examiner investigating the collapse of Lehman Brothers Holdings Inc. blames senior executives and auditor Ernst & Young for serious lapses that led to the largest bankruptcy in U.S. history and the worst financial crisis since the Great Depression.

Accounting fraud? Off-balance-sheet debt? Lies? Deceict? Auditor negligence? What are we talking about here, Lehman Brothers or Enron? Congress should repeal Sarbanes-Oxley and start over, because this report makes it fully, painfully obvious that we learned absolutely nothing from Enron’s collapse (we did get a hit Broadway show out of it, though, so it’s not a total loss.) We allowed the same exact kinds of fraud that eventually sank Enron to remain on the scene, and get picked up by other players eager for a quick buck, despite the much despised Sarbox rules.

Al Capone kept cleaner books than these guys. And ask yourself this: do you really think Lehman Brothers and Enron were the only two companies that did this stuff? Who’s being naive now, Kay? The report also makes clear, because clearly it wasn’t clear to some interested parties, that the accounting rules need to be part and parcel, and a big part and parcel, of any and all financial reform.

This report is a daisy cutter through all the self-serving defenses for saving the banks, and more than one reputation is likely to be ruined by it. The financial meltdown wasn’t some hundred-year storm, and it wasn’t a crisis of confidence, and it wasn’t an attack of short sellers. It was a willful, conscious, mad dash for money, come hell or high water. Both eventually showed up.

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While we ponder the awesome responsibilities to be housed within the new Consumer Reports division of the Fed and , take a minute to dive down this rabbit hole. One of the big sticking points is giving the government power to break up big banks, right? Well, what if it already has this power?

“Don’t give me any of this ‘our hands are tied’ malarkey. The Obama administration could break the “too bigs” up in a heartbeat if it wanted to, and then justify it after the fact using PCA or another legal argument,” the Washington Blog wrote in October, citing the “PCA,” or the Prompt Corrective Action law, which charges the government with taking prompt, correction action to minimize losses to the deposit insurance fund.

Indeed, the government stepped in to take control of Continental-Illinois back in the ’80s when action was needed, and it could have stepped in during the financial crisis as well. Of course, it may have ended up with Citi, BofA, Fannie, AIG, Freddie, Goldie, Wells and who know who else to “resolve,” but at least we wouldn’t be held hostage to a bunch of big banks that have way too much influence in both the government and the market.

Like I’ve been saying, if the right framework is in place, you don’t need some extra resolution authority. But this current Senate bill doesn’t seem to be geared toward doing that at all.

We're coming after you, Geithner!

Long live the days of government handouts with no strings attached.

GMAC has come crawling back to the government yet again, asking for a third lifeline of taxpayer money. The troubled consumer lender, which has already received $12.5B from the government since December, has asked for another $2.8B to $5.6B of fresh capital in the form of preferred stock. WSJ has the details:

The willingness by Treasury officials to deepen taxpayer exposure to GMAC reflects the troubled company’s importance to the revival of the auto industry. Founded in 1919, GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of General Motors and Chrysler car dealerships in the U.S.

The new capital would help firm up GMAC’s balance sheet and solidify its auto-loan business. GMAC provides the vast majority of wholesale financing for GM dealerships across the country, meaning scores of local distributors would be unable to bring new vehicles onto their lots if GMAC were to collapse.

GMAC begging for more funds is a stark reminder of the bailout rage that swept through the economy in late 2008 and earlier this year. Bloggers, to say the least, are outraged.

“The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio,” Yves Smith writes at naked capitalism. “So this is cash for clunkers under another brand name.”

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