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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (31215)	6/19/2008 3:16:22 AM
From: Madharry	Respond to of 78661

No wonder financials keep getting hammered: globaleconomicanalysis.blogspot.com

To: Paul Senior who wrote (31215)	6/19/2008 3:35:21 AM
From: Madharry	Respond to of 78661

Buckingham Research sees Higher GM Cash Burn, Risk To Dividend. Buckingham Research Analyst Joseph Amaturo cut his stock price target to $10 from $13, and reiterated his underperform rating, saying production declines are likely to widen loss expectations and accelerate the drain on liquidity. GM's stock, a component of the Dow industrials, shed 0.6% to $16.02, and has now lost 31% since the end of April. It hit a low of $15.76 earlier in the session, the lowest price seen since August 1982. Amaturo said he now expects a 2008 loss of $6.53 a share and a 2009 loss of $7.73 a share, wider than his previous forecasts of a 2008 loss of $4.57 a share and a 2009 loss of $6.14 a share. He also said the automaker's cash and equivalents balance is expected to fall below $20 billion by the end of the second quarter, and raised his 2009 cash burn projection to $17 billion from $14 billion. "We believe it is becoming evermore likely that GM's current cash dividend could be eliminated or cut as the company likely has to raise capital to remain solvent beyond 2008," Amaturo said in a research note. "We believe management could raise capital as much as $7 billion to $10 billion, which will result in significant dilution for the current equity holder, in our opinion." Separately, Credit Suisse Analyst Chistopher Ceraso said GM's third-quarter production schedule appears to be "way to aggressive," and could leave trucks about 50% overstocked at the end of September. GM missed a golden opportunity to raise cash when Captain Kirk Kerkorian temporarily lost his mind attempting to be a "white Knight" in rescuing GM (see What is GM worth?, July 2006). GM managed to hit $37 when that love affair was on and more amazingly approached $42 after Captain Kirk bailed. GM could have raise money at $40, $35, $30, $25, or $20. This is a slow replay of Ambac (ABK) that had uncountable chances to raise money at $80, $70, $60, $50 etc, but now sits at $2.14 on its way to zero. Some might argue that I am making this seem easier than it is. Not really. Credit conditions were extremely easy a year ago. The opportunity was there, then. Now, is another matter. Right now it is costing Citigroup and Lehman 9%+ to raise cash. Perhaps it would cost GM 15% or more. Furthermore, I do not think Citigroup goes bankrupt. It could, but I think the Fed would force it to be busted into pieces or taken over first. All bondholders care about is if they get paid back. They do not care one iota if the share price plunges 90% or more as Bear Stearns did from the top. On the other hand, GM is far less likely to survive. One should expect its bonds to be priced accordingly. The most interesting thing about GM is the fact that there is $1 trillion in credit default swaps speculating on the demise or lack thereof of this dog. To put things into perspective, the market cap of GM is $9 Billion and over $1 trillion is bet on whether or not it survives. Anyone who tells me these bets are hedged, please tell me how. There is not enough stock or bonds to hedge with. By the way, that $1T figure is over a year old. Anyone with a more current number, please send it my way. Assuming Buckingham Research is correct about GM's cash burn rate, GM will be out of cash in 18 months. However, please remember that GM is a company that has had 27 lives. I thought it would go bankrupt six years ago. Yet, somehow it has repeatedly been able to go back to the bond markets and raise cash. That is the only reason why it exists today. The difference this time is that GM blew a golden opportunity to raise cash a year ago or so. It also blew a golden opportunity to unload GMAC and Ditech. With credit conditions being what they are now, I suspect GM will delay raising capital. This will be another mistake in a long series of serious mistakes at GM. Credit conditions will likely be worse a year from now, just as GM will be down to its last few billion. This means it's increasingly likely that GM has made its last fatal mistake. And with all those swaps, someone has to be on the losing end of a huge bet, regardless of what happens. Mike "Mish" Shedlock globaleconomicanalysis.blogspot.com Posted by Michael Shedlock at 12:41 AM GM's Last Fatal Mistake

To: Paul Senior who wrote (31215)	6/19/2008 11:51:22 AM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78661

"SSL/OXY. Holding what I have. Preferring to add to BP/E/TOT among the larger companies." I spent a little time looking at these companies. It appears that BP and TOT have >70% of sales in refining. E has ~40%. OXY is pure (?) E&P company. So I guess BP/TOT investing would assume a recovery or at least not a total collapse of refining. Not necessarily a bet I want to make beyond my current "refining" holdings (I already have some COP, TOT, E). So, so far I think OXY is most attractive of this bunch. I want to look a bit more at SSL, PTR and maybe even my other energy holdings before buying more. Overall, about 15% of my portfolio is now in energy. Not a huge percentage, so perhaps I should add more even with all the talk of bubble.