Things looked a bit shaky on Monday morning as traders pushed the ‘sell’ buttons after a long Holiday weekend and sent the Dow down some 120 points.
Give credit to the financial stocks as the major averages clawed back and ended near the flat line.
Much attention was focused on GM as to whether they are closer to bankruptcy than previously assumed. Apparently, the automobile industry task force has in no uncertain terms told GM to prepare for a June 1 BK filing, just in case they can’t reach an agreement with UAW and its bondholders. Seems to me the thumbscrews have been tightened, but it remains to be seen if there is any adverse market reaction if a bankruptcy filing indeed takes place.
Markets typically react to unforeseen events; this one could be classified as the worst kept secret. There is more talk to possibly split the automaker into a ‘good’ and ‘bad’ company, with the good one retaining the successful automobile brands and the bad one being sold off over the next few years.
Either way, there will be some impact on the forthcoming unemployment numbers as a bankruptcy would certainly guarantee masses of direct and indirect lay-offs. I am not sure if this impact will be strong enough to have an effect on the current market rebound and put into question the preferred view that an economic recovery is looming on the horizon.
Comments 4
Ulli,
Bankruptcy may cause GM to make the necessary changes that are needed to be competative, but that may cause their common stock to be worthless. If that happens the big institutions might start investing heavily in Ford stock and that would be a good thing for us who bought Ford at a lower price a while back.
Ulli,
The dumb things like a $40,000 Volt car is one of the reasons GM will have problems, it may turn out to be a shock, pun intended. The average American who is losing financial ground every day with little or no pay raises or maybe no job at all is not going to buy that car. The maintenance as that car gets older would also be shocker. I am sure the insurance premiums would also be a shocker as well. So maybe GM is out of tune with reality. Bankruptcy would bring them back to reality. The problem is that they may lose so much business to Ford and Toyota during the bankruptcy proceedings that they may not be able to recover.
Hi,
Surely Chinese cars will be here in the near future and that may hurt all the car companies that are assembling cars in the USA.
Not that I’m a big fan of American car companies, but if we compare the bondholders of the big banks to the bondholders of the car companies, we certainly can see who is getting preferential treatment. The bondholders of the banks have not been forced to take any discounts but not the car companies’ bondholders.
I guess no more Sunday afternoon drives in the country, since we won’t have any cars, and if we did we wouldn’t be able to afford them because of high interests the banks are going to charge us for the loans to buy them. Oh, but for the good old days. Is this nutty or am I?