Tuesday, May 19, 2009

Why is GM's stock above 0?

According to Reuters, GM is going to go bankrupt soon, becoming Government Motors. Even ignoring the insanity of the government essentially nationalizing two car builders at the same time, the markets are past irrational.

GM will go bankrupt. Their good assets will be bought to pay off their secured debt (at least they're not robbing bondholders like Chrysler). The trash gets left to pay off the unsecured debt (hah!). Yet, at the time of writing GM's stock is 1.29 and rising.

Essentially, GM is going to destroy itself and void the stock. The current stock will at best be worth pennies on the dollar, and most likely is now worth 0. Even so, people are buying it.

As Milady pointed out, perhaps there's a deal to save the stockholders over the bondholders. Maybe program buying of the Dow or S&P 500 is holding up GM. Or maybe people are just plain dumb.

I would short GM with borrowed money if I wasn't afraid that the fix was in.

1 comment:

mike said...

you idiot........the gm bondholders are unsecured and are getting screwed under the proposed deal with .02 on the dollar. they are talking about secured lenders being made whole,ie banks........oh that's right more bailout of wall street financial institutions and to hell with the mainstreet investors!!!