That’s right, it’s GM. Warren Buffet loves companies with 36% ROE because they keep making more and more money. The same applies to GM of course, except with negative equity and negative profits, the losses compound rather than the profits.
News Item: GM Auditors cast doubt on GM’s viability to survive without another government bailout.
How on earth could this have affected the market? What did these forensic accountants find hidden deep in the basement of GM’s headquarters that tipped them off?
Could it have been any of the following?
* If you add up the total equity of GM, Microsoft and Google, you still have negative equity.
* GM has averaged a $20 billion a year loss for the past four years -- twice as huge as Exxon Mobil’s record setting $10 billion a year.
* Even though GM makes “world class cars”, it can’t export them because other companies make better world class cars.
* Anyone thinking of buying a Cadillac or Chevrolet right now is waiting for the post-bankruptcy sale.
* GM’s fuel efficient hybrid Escalade is LESS fuel efficient on the highway than a V8 Cadillac STS and only just beats the gas guzzling Hummer.
One thing I noticed on the news these days is that fewer people are referring to the current state of the economy as a “recession” and using “down turn”, “decline”, and “deterioration”. Some are even using the other D word. I doubt we’ll get that far, but it does look pretty serious. Here’s why:
You know the recession is serious when…
* Putting ten gallons of gasoline in your tank costs more than buying ten shares in the car company
* It’s cheaper to buy 10% of the company building your house… than to actually build the house
* A company’s market cap is smaller than your original investment
* You can buy five houses in Detroit for the same price of a new car made there.
* GM is worth less than 10% of its inventory
* Your airline considers charging you to use the toilet
* A $2.7 trillion dollar deficit sounds manageable
* Your credit card company cancels the credit card because they run out of money to lend to you -- even at usury rates
* Your option based incentive program is now worth less than what you spend each day getting to work
* Taking a slow boat to China sounds like a realistic way to save transport costs
* Spending a mid-sized country’s annual GDP on a stimulus plan sounds reasonable
* You consider 0.1% US treasury bills a good investment
* Your ATM slip costs more than a share in the bank.
Cheers,
Peter.