This American company has gained 777% the old-fashioned way: selling junk in backroom deals.

As regular readers know, I am a Ford man.

Back when I was a kid, you had to make three really important choices. First, you had to pick a political party. Didn’t matter how well you knew the candidates – you picked a party and that’s what you were.

We are talking Democrat or Republican here. Libertarians weren’t much discussed, and backing the Socialists could get your parents blackballed at work. And if you wanted peace around the dinner table, you just went with the same side your folks did.

Second, you had to choose “your” baseball, basketball and football teams. We didn’t have rotisserie leagues back then, so there was no “à la carte.” You picked your guys, and you defended their every move in the schoolyard and on the stoop – with fists if need be.

Prudent Choices

To this day, I still follow the Mets and the Knicks over the Orioles and Wizards. I am making an exception for the Baltimore Ravens, as I now live down the street from their headquarters. Call me a coward, but I am not going to talk up the New York Jets while standing in line at the local donut shop – surrounded by half the Ravens’ defensive line.

“Just not prudent,” as Bush senior used to say.

Finally, you had state your alliance to one of the big three American automakers. American Motors did not count. You had to decide between Ford, Chevy or Mopar power. Didn’t matter if you’d only ridden in the back seat. You picked your allegiance, and from that point on, that’s what you were.

A 777% Payoff

Now, being a Ford man has not blinded me to some of the truly awful cars they have trotted out in their day. I don’t much care if the Escort was the best-selling car in Asia 10 years running – it was no Mustang. And the Aspire? Don’t get me started.

Lately I’ve been talking up the stock, bragging as to how Ford made all the right moves a couple years back, ditched the deadwood, patched up relationships, rededicated themselves to making cars folks wanted, yadda, yadda, yadda. I was especially proud of the fact that Ford didn’t need to beg capital from the Feds, or declare bankruptcy.

And I have been pretty much dead-on in my assessment. Ford shares have climbed more than 777% over the past 10 months.

Not Quite “Self-Made” After All

But I have to confess to a few minor errors in my theory. Yes, they did indeed climb out of their hole in the most magnificent fashion. What’s more, they look to my eye to be a continued buy for some time to come (I’ll tell you why in just a moment).

But Ford is not quite the “hauled ourselves up by our own American bootstraps” story I have been making it out to be. When you dig a little, it appears that they have been getting more than a little help – and some of it did indeed come from Washington and Wall Street, albeit through back channels.

Let me walk you through some of these backroom maneuvers – connect the dots a bit – and I think you’ll see why Ford shares are still a long-term buy.

Follow the Money: Washington to Wall Street…

Let’s start with dot number one: Goldman Sachs (GS:NYSE).

Back during the bad old days of 2008, when we thought the whole world was going to collapse, all of Wall Street’s major players were brought into a meeting room in Washington and told that they were going to take many billions of dollars in TARP bailout funds. Didn’t matter if you were solvent or not – this was an offer you couldn’t refuse.

Now as you know, Goldman came through the crisis looking like pure gold. And in all fairness, GS has already repaid its $10 billion – something to do with not being able to pay out massive bonuses while stuck under the government’s thumb. But somewhere in the midst of this roundelay, they managed to slip some $250 million out the door to acquire a stake in the parent company of mid-tier Chinese automaker Geely.

Wall Street to China…

Geely wants to expand its way out of the pack to become a major international player, in much the same fashion as Indian carmaker Tata has managed to distinguish itself. So they have taken a page out of Tata’s playbook, and are looking to relieve Ford of their ailing Volvo division for some $2.59 billion (Hong Kong dollars).

Is this really wise? For Geely, perhaps not so much. Tata bought Land Rover and Jaguar off Ford just before the whole luxury market tanked, and the $8 billion in debt has been weighing down their books ever since.

But for Ford, it will be a relief and a source of string-free capital just when they want it most… because Ford wants to send the money right back into China. By 2012 or so, they plan to partner with Chongqing Changan Automobile to open a new manufacturing plant to sell directly into the burgeoning Chinese market.

…And China to Detroit

Follow the dots: Washington to Wall Street… Wall Street to Hong Kong… Hong Kong to Detroit… Detroit back to Shanghai…

A dizzying, twisted path, but in the end, American taxpayers did sort-a-kind-a help Ford out. But at least they did it the honest way – good old-fashioned backroom deals – instead of via socialist handouts and bankruptcy.

Okay, now I am starting to sound like a homer, defending “my” team in the schoolyard. Still, I have to point out (yet again) that Ford is one of the few companies that has come through the crisis with capital intact and a reasonably bright future ahead.

A (Very) Long-Term Buy

Ford currently has some 2% of the Chinese market. Now, we are all expecting that overheated market to sag just a tad. Apparently, Ford sees this sag as a chance to do in China what they did here in the States: acquire market share just when everyone else is overextended.

As for the short term? Heck, I don’t really know. In point of fact, I have already advised readers of my own WaveStrength Options Weekly column to take their Ford call option gains off the table. But long term, it certainly appears that the guys in the corner office in Dearborn have cornered the market on strategic planning.

Follow the Money: Washington to Wall Street…

The dollar slipped to a two-week low against the euro while the yen fell broadly on Wednesday as a tentative agreement by U.S. lawmakers to rescue American automakers helped calm investor sentiment.

The White House and congressional Democrats reached a deal in principle on a $15 billion plan to bail out and restructure auto firms, with officials saying the House of Representatives could vote on it as early as Wednesday.

“The market is still feeding off hopes for mass fiscal stimulus in the U.S. once (President-elect Barack) Obama takes office,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

Specific to the auto bailout, “in so far as how it is boosting equities, that is important for the foreign exchange market.”

U.S. stock futures rose on Wednesday, a sign of rising risk tolerance, due to bailout hopes. That led to an easing of the move to unwind carry trades, which use the yen — whose interest rate is near zero — to fund purchases of higher-yielding assets.

In early New York trade, the euro edged up 0.3 percent to $1.2948, having earlier hit a two-week high of $1.3004, according to Reuters data.

The dollar rose 0.7 percent to 92.78 yen , while the euro gained 1.1 percent to 120.28 yen. The yen was down 1.2 percent against the Canadian dollar , 0.7 percent against the Swiss franc and 1.1 percent against the pound , according to Reuters data.

Analysts said fears of Bank of Japan intervention to prevent too much yen strength also weighed on the currency after BoJ Governor Masaaki Shirakawa said on Wednesday he was watching forex moves carefully.

But few expected action any time soon.

“A comment from BoJ Governor Shirakawa that the Ministry of Finance has the option of intervening was a statement of fact to lawmakers rather than a hint that intervention is imminent,” said Brown Brothers Harriman in a note to clients.

Analysts said trading in recent days is less active than usual with little economic data to drive market moves and investors beginning to wind down for the year-end holidays.

“We’re seeing subdued days in foreign exchange markets,” said Scotia’s Malyon. “We are also in a week where there is not a lot of direction.”

US BAILOUT IN FOCUS

Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high.

The prospect of interest rates in other developed countries falling towards the low rates in Japan will also keep the Japanese currency supported, they said.

Traders waited to see whether the House of Representatives would approve the automaker bailout, which includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the three U.S. auto firms were to fail.

Some market participants are sceptical on whether such a plan, if passed, would actually save the struggling auto sector, while others argue that it would ultimately do little to cure the global recession.

“The market may yet reach a stage where interest in risk assets cannot be justified by the underlying conditions in the global economy,” analysts at UBS said in a research note.

Nick Olivari
NEW YORK, Dec 10 (Reuters)