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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (45923)	2/6/2006 3:18:58 PM
From: mishedlo	Respond to of 116555

General Motors Board to Meet Under Pressure for Dividend Cut Feb. 6 (Bloomberg) -- General Motors Corp., the world's largest carmaker, may cut its dividend for the first time in 13 years as billionaire investor Kirk Kerkorian demands GM save cash and unions want shareholders to sacrifice to help the company. Decreasing GM's annual $1.1 billion dividend, worth $2 a share, would give Chief Executive Officer Rick Wagoner leverage to ask workers to accept cuts in addition to the $1 billion in annual health-care and wage reductions they agreed to last year. The company's board meets today to consider the dividend reduction. GM's dividend gives the stock an annual yield of 8.64 percent, the highest among members of the Dow Jones Industrial Average. Jerome York, an aide to Kerkorian, GM's fourth-largest investor, said Jan. 10 the company needs to halve the dividend. The Detroit- based company had a $8.6 billion loss last year. ``The GM board is clearly under pressure from York, who is the most significant voice for the shareholders,'' said Brian Bruce, who helps manage $18 billion, including GM shares, at PanAgora Asset Management in Boston. ``The board needs to make changes soon, starting with cutting the dividend.'' Shares of General Motors today rose 23 cents, or 1 percent, to $23.38 in Germany from $23.15 at the close of trading in New York on Feb. 3. United Auto Workers President Ron Gettelfinger has said GM investors should help the automaker cut costs. UAW spokesman Paul Krell said after York's speech that the union agrees GM management and workers should both sacrifice for the automaker. GM spokesman Jerry Dubrowski said the automaker doesn't comment on board meetings. `Weaker Results' ``With weaker results as a backdrop,'' GM's board will probably halve the dividend at today's meeting, Morgan Stanley analyst Jonathan Steinmetz wrote in a Feb. 3 report. ``An argument could be made for an outright elimination of the dividend, though we view this as unlikely.'' York, a former Chrysler Corp. finance chief who advised Kerkorian during the investor's failed bid to take over Chrysler Corp. in 1995, has also said GM senior management should take ``substantial'' pay reductions, brands such as Saab and Hummer should be sold, and the company should give clear financial goals. Wagoner has said that cuts already planned will save $7 billion a year. Wagoner stopped earnings forecasts in April. York estimates GM's daily losses at $24 million, and has said the company has enough cash to fund operations for about 1,000 days, assuming it gets about $11 billion for a 51 percent stake in the General Motors Acceptance Corp. finance unit. Kerkorian holds a 9.9 percent stake in GM through his holding company, Tracinda Corp. Board Seat GM and Kerkorian have held discussions about giving York a seat on the automaker's board, and said Dec. 9 they were unable to come to an agreement. Chief Financial Officer Fritz Henderson said Jan. 8 that he wouldn't be surprised if GM talked to Kerkorian again about York joining the board. ``We would have liked to have Jerry York on the board, we just weren't able to put that together,'' Henderson said. Kerkorian's activism is designed to ``get the pressure as high as possible on the whole company this year,'' David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said in an interview. ``I think they'll be pretty responsive to some of the things York wants.'' Analysts and investors will also be monitoring today's board meeting for information about Wagoner's attempts to sell a majority stake in GMAC to a company, presumably a bank or private-equity fund, with higher debt ratings. Steinmetz wrote that GM's board might provide some ``clarity'' on the state of the sale, which would reduce GM's borrowing costs. Investment Ratings Standard & Poor's and Fitch Ratings analysts said last week that at least one bid, from Cerberus Capital Management LP and leveraged buyout unit Citigroup Alternative Investments, probably wouldn't meet their requirements to give GMAC an investment-grade rating. That would require Citigroup Inc.'s banking business to be more involved. The Cerberus and Citigroup buyout group made an offer Jan. 30 for a stake in General Motors Acceptance Corp., according to a person with direct knowledge of the matter. Two days later, Citigroup Chief Executive Officer Charles Prince said he doesn't ``envision GMAC as an operating company of Citigroup,'' signaling that the bank would only be an investment. The Cerberus-led group is competing with a team including Wachovia Corp. and Kohlberg Kravis Roberts & Co., according to people from both groups familiar with the talks. Since 2002, GM has made more money from auto loans and mortgages than from building cars and trucks. Last year, the company's auto business had $9.7 billion in losses, while GMAC made $2.8 billion in profit. What's Left? ``You have to ask yourself, if you sever the profitable part of a company from the part of the company that's less profitable, what do you have left?'' Russ Koesterich, a fund manager at Barclays Global Investors, GM's sixth-largest investor, said in an interview last week. ``To me, this is an area that still has to develop, and I don't necessarily know if I would go forward with that.'' Kerkorian, 88, said in a Jan. 26 filing that his Tracinda Corp. spent $263 million to increase his stake in the automaker back to 9.9 percent, or 56 million shares. He has said he may buy 12 million additional shares if GM meets his demands for fixing the company, including the dividend cut. GM hasn't reduced its dividend since November 1992, when the quarterly payout was reduced by 50 percent to 20 cents a share. If GM cuts its current dividend in half, Kerkorian would give up $56 million a year. Volatile Shares If the board does decide to cut the dividend or gives a status report on the GMAC sale, GM shares will continue to be volatile, UBS Investment Research analyst Rob Hinchliffe wrote in a Feb. 2 report. GM shares have risen 19 percent in 2006, and declined on 11 of the 23 trading days this year through Feb. 3. On eight of those days, GM shares gained more than 2 percent, including a 9 percent gain Jan. 23. The shares' biggest dip was 4.1 percent on Jan. 12. `` GM doesn't need any more bad publicity,'' said Eugene Jennings, a business professor emeritus at Michigan State University who studied the auto industry and has served as an advisor to corporate boards. ``I don't think they'll touch the dividend.'' quote.bloomberg.com

To: Tommaso who wrote (45923)	2/6/2006 3:37:40 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

It's a whole new way of finanacing! What's with this nonsense? ======================================================= Companies scramble to exploit 'hybrid' finance Companies around the world are lining up to exploit a new form of financing that cuts their cost of capital and could prove one of the most important developments in corporate funding in two decades. Bankers are predicting explosive growth in a new generation of so-called hybrid securities, creating a potentially lucrative source of fees for investment banks. Companies will increase the amount raised from these securities tenfold to $40bn this year in the US alone, according to some Wall Street forecasts. Investors view the hybrids as long-term subordinated debt, meaning they would rank behind all other creditors in a bankruptcy. The hybrids carry some equity-like risks, such as the possibility interest payments might be deferred, but have no share price upside though investors can gain from early repayment. Analysts at Citigroup calculate that if half the top 500 U.S. companies replaced 5 percent of their capital with hybrids, it would increase their value by $100 billiion, the FT said. The rest of this article is for FT.com subscribers only

To: Tommaso who wrote (45923)	2/6/2006 3:43:01 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

A Real Washington Scandal By Congressman Ron Paul Supreme Court nominations, congressional ethics scandals, and insider politics dominated the Washington headlines in recent weeks. But perhaps the most important story, in terms of its impact on average Americans, has gone virtually unreported. Later this month our Treasury once again will hit the "debt ceiling," a figure based on federal law that limits the amount of money the federal government can borrow. The total amount of federal debt as of this month is a staggering $8.2 trillion, a number that is almost incomprehensible. The effects of this debt, however, will be felt by all of us in the form of inflation, higher interest rates, and a weakened U.S. economy. New Federal Reserve Chairman Ben Bernanke faces a difficult dilemma. Our overseas creditors, particularly Asian central banks, already hold billions of U.S. dollars and are losing their appetite for lending us more money. They are wary of our enormous federal deficits and reckless economic policies. Ask yourself a simple question: would you loan the U.S. government money, given its spending habits? It's clear we can't go on borrowing $1.8 billion every day to finance the government! The simplest way for the Fed to overcome these fears and maintain worldwide enthusiasm for the dollar is to raise interest rates and stop putting new dollars into circulation. But the Greenspan "boom" was based on the opposite approach. By cutting interest rates to the bone and vastly increasing the money supply, Greenspan made Americans feel rich-- first with the stock market bubble of the 1990s, and later with the housing bubble that is only now starting to burst. Greenspan was brilliant at making debt feel like wealth, but Mr. Bernanke inherits a very difficult situation. To maintain the value of the dollar, he must put the brakes on the money supply and raise the cost of borrowing. Such tough action is unlikely, however, given Mr. Bernanke's troubling public statements about the benefits of government printing presses. For years the Federal Reserve Bank and Congress have maintained a cozy relationship. The Fed, by pumping more and more money into the economy, has allowed Congress to spend wildly beyond the amount collected each year by the Treasury. Congress loves deficit spending, because new programs are always politically popular and tax hikes are always unpopular. In return, Congress has maintained a completely hands-off approach toward the Fed system, allowing Mr. Greenspan free reign to "run the economy" with tremendous deference from both the public and the press. The results are not pretty. True inflation, correctly measured by the amount of money and credit available, has skyrocketed in the last 15 years. At the same time, federal deficits have exploded. Congress is addicted to spending, and the Fed is happy to supply the fix by providing easy money. As economist Addison Wiggin states, however, "The Grand Experiment with paper money is running its inevitable course. Bernanke's biggest challenge is the challenge of central banking itself: You can control some things, but not everything. In the Fed's case, it can control the quantity of money or the quality of it, but not both at the same time." All of these factors make it likely the U.S. dollar will continue to decline in value, perhaps precipitously, in the coming decade. Will it take an economic depression before the American public finally holds the political class accountable for its reckless borrowing, spending, and counterfeiting?