Monday, November 10, 2008

Corporate Updates...

1) Amex - No one wants to be a bank holding company. American Express made this bold decision late today in an effort to improve their access to funding under the TARP. Is anyone left not asking for money under the TARP?

2) Nortel - Hey, Nortel's gone full-circle as another bubble has burst and it's back under $1. For a little perspective, Nortel traded at $1,200+ (Canadian) back in 2000 during the dotcom bubble.

3) Circuit City - Another telegraphed bankruptcy. I never understood who went to Circuit City anyways. The quality of products were better at Best Buy, the prices of equipment are always better at Costco, and customer service at Circuit City made J&R customer service seem friendly.

4) Target/Starbucks - Starbucks reported a 97% decline in net income (after charges, etc), but I thought it would be interesting to point out the Watertown PEAK again. Starbucks opened it's store in Watertown, NY in Feb 2007. SBUX was trading within 10% of it's all-time high at $34. Today, the stock is $10. I included Target as another example of the Watertown PEAK predictor - I think Watertown's Target opened in Spring of 07 as the stock traded $60+, it went a little higher before retreating to it's current level of $36.

5) GM - I don't have much to add here, but I appreciated the bold call out of Deutsche Bank that said the equity value of GM was likely to be $0.


Anonymous said...

I have read your blog entries and have found them to be very informative. However, your inexorable hope for the demise of the US auto industry is distressing and frustrating. Why is it that some of the more educated among us feel it necessary to root against the home team? The US auto industry may appear meaningless to those that do not have an understanding for the breadth and power of their influence. A massive failure of any one of these manufacturers will have a profound impact on our small community.

In Jefferson County alone, it is likely that more than 1000 people are directly employed at domestic automobile dealerships. These dealerships pay massive amounts of income and real estate tax to our county and state. They pay large amount of interest to our local banks for the inventory on their lots. A dealership with 200 cars on the lot can have as much as $4,000,000 in floorplan loans with interest being paid to local banks. Their employees are some of the best paid people in our area. Each of them likely supports 3+ local retail, professional, and service jobs in Jefferson County. So more than 4,000 people could be directly affected without even considering the ramifications to our local banks revenues and viability if these giants were not around.

Hopefully, those who don't see the whole picture now will see it before it is too late. From what Wagoner (GM's CEO) has said on the state of his company’s finances, too late is coming too soon.

If we let them capsize during this perfect storm, the burden on tax payers to recover the life rafts and rescue the drowning many, will be orders of magnitude greater than the cost of keeping the ship afloat.

The Artful Blogger said...

I appreciate the comments and you ask some good questions. I don't want to appear that I'm "rooting against" any teams - home or away (disclosure I own a Japanese car and a GM SUV). I try to separate fact from fiction and unlike most people speaking in a public forum, I attempt to tell the truth, especially when it's painful. Americans have a long and passionate history with their vehicles. We will continue to buy cars regardless of the state of our economy or the state of our car makers.

Others have pointed out successfully that the demise of GM/F/C is not really the demise of the US auto industry. There is a booming auto industry in the South. They have new plants, younger employees and better contracts (for the car companies).

I am only pointing out that the proposed "bailout of GM" isn't much more than a subsidy of their poorly designed healthcare plan. It does nothing to address the big picture issues at GM - the lost generation (ask anyone 18-35 to name their top 5 car brands, few people in that age group can even name a GM brand), health care and pension costs that continue to spiral out of control and an inability to manufacture a reliable, high-quality, 35-40 mpg sedan.

Ultimately, I think there may very likely be a bailout of the carmakers, but I'll stick by my forecast that within the next 4 years 1 to 3 of the Big 3 will be bankrupt. Finally, I think it's important to know that a bankruptcy would not mean that the car company would go out of business. It would simply allow them to restructure their financial picture (eliminate many debts, wipe out equityholders).

Thanks for the comments!!