This from Daily Reckoning:

The automakers are still haunting Washington. They don’t have any money of their own, so they’re looking for taxpayer’s money. GM (NYSE:GM) says it needs $18 billion – bad.

If they don’t get taxpayers’ money, they say they’ll be forced to turn to the Swedes or worse…the Chinese!

We suspect they’ll get a bailout. But what do they deserve?

Here are companies that have been around for an entire century – plenty of time to learn their trade. And they’ve been in the center of the best auto market in the world – the United States of America. If you couldn’t make it in the car business in the US…you had to be hopeless. Nobody bought more cars than Americans.

And these companies had every advantage – they had capital, they had the sales and service networks reaching into every Middlesex, village and farm in the nation. They knew their customers better than any of their foreign competitors. And they didn’t have to ship their cars across an ocean to sell them.

For a half century, it was downhill driving for America’s automakers. But it’s very hard to recover from success. And Detroit couldn’t quite do it. They squandered their money… they missed their market target…they saddled themselves with costs that gave them a disadvantage and hobbled them so greatly it was almost impossible for them to compete – even with the playing field tilted in their favor.

Then, even when asking for a handout Detroit’s executives couldn’t seem to get its signals straight. They flew into Washington on their private jets…apparently unaware that anyone would notice.

What do they deserve? They deserve to go broke.

Source: Going Broke Is What Everyone Deserves

The usual NY gold commentator had the following yesterday…”News reports indicate that Turkey imported 15 tonnes of gold in November. Considering that the Turkish currency has slumped by some 30% in the last couple of months, this is actually quite remarkable. Probably it reflects the volume of Turkish imports subsequently re-exported to countries to the south…Today’s ECB (European Central Bank) weekly statement of condition reports that ‘gold and gold receivables’ dropped E115 Mm, which ‘reflected’ gold sales by two captive CBs. At 5.7 tonnes, this is somewhat higher than of late (last week’s quantum was 2.83 tonnes), but is still small even compared to the 9.6 tonnes notionally possible if the WAG2 quota were to be sold evenly….In an interesting remark today The Gartman Letter notes the extreme despondency seen at a gold conference recently attended. This was pronounced enough for TGL to worry about the wisdom of being short.”

Black Monday’s open interest numbers for gold were as follows…o.i. was down another 4,949 contracts. Some of that was deliveries. Gold open interest is down more than 50% this year. And even though there were a bunch of deliveries in silver, o.i. actually rose 841 contracts. After the bushwhacking that silver took on Monday, it’s hard to believe that it wasn’t fresh shorting. However, we won’t know the answer to that until Friday when the next COT comes out. Incidentally, the close of Comex trading yesterday was the cut-off for Friday’s report.

In the bad news department, I see that GM and Ford (NYSE:F)sales in November were down 41% and 31% y/y respectively. The rest of the car makers, imports and all, had mostly similar numbers. Now the word is that GM (NYSE:GM) and Chrysler need $15 billion to survive until next month! In a Bloomberg story…”The Swiss National Bank is becoming the first central bank in Europe to learn what it’s like to live in a zero interest rate world.” And in another Bloomberg story, Troika Dialog, Russia’s oldest investment bank said that “Russia should abandon its defense of the ruble to kick-start economic growth by devaluing the currency 20%.” And in a story over at breitbart.com, “Federal Reserve chairman Ben Bernanke said Monday the current economic situation bears “no comparison” to the much deeper crisis of the 1930s Great Depression…so let’s put that out of our minds; there’s no comparison in terms of severity.” (Note to Ben: At the moment you could be right. But let’s see how things are when we hit bottom…which is years away. – Ed)

Three stories today. The first is from the Zimbabwe Times. The headline reads “$60,000,000,000,000,000,000,000 fraud!” This is what happens when you have hyperinflation. The link is here.

Today’s second feature is a piece from resourceinvestor.com. In it, Gene Arensberg comments that junior mining company insiders are buying their own company’s stock hand over fist on the Canadian Venture Exchange. That’s always an encouraging sign. The essay is entitled “Canadian Insiders Buying Despite Dismal CDNX”…and the link is here.

And lastly, but not least, is silver analyst Ted Butler’s latest offering. In this commentary, Butler says that the commitments of traders in the silver market has reached a bullish extreme not seen in years…apparently an effort by JP Morgan Chase (NYSE:JPM) to clear longs from the market. Butler’s commentary is headlined “COT Extremes” and the link is here.

The Dow managed to recover some of its big losses of Monday, but it obviously had the President’s Working Group helping it out. Shortly before 2:30 Eastern time, the Dow was about to head into negative territory…but gentle hands showed up three times in 90 minutes on the way to a 270 point ‘gain’. This is a market that wants to die, but the PPT won’t let it. One wonders how far it would fall if there was no one there to stop it.

See you tomorrow.

Source: And Then There’s This…Wednesday, December 3rd, 2008

When it comes to Ford Motor Co. (F), a Canadian car dealer bet a month’s sales on that premise.

Rose City Ford dealership owner John Chisholm offered 100 shares of Ford stock to anyone who bought a new or used vehicle from the dealership during the month of November, the Windsor Star newspaper reported. Chisholm, the president and general manager of Rose City, said he got the idea from a General Motors Co. (GM) dealership in Texas that offered GM shares for each vehicle sold. So Chisholm opted to try it in Windsor, the Ontario, Canada city where Ford has both a long history and deep community roots.

“What a great way to show our confidence in the company,” Chisholm, who employs 80 at a dealership that his father founded nearly 30 years ago, said in an interview late last week. “We believe the company is going to be around for a long, long time.”

Chisholm was planning to actually buy the shares Monday for customers who bought a vehicle last month. He expects to extend the promotion, should its popularity continue.

“We want as many people with ownership in the company as we can,” said Chisholm, who owns Ford shares himself. “They’ll be going up. This is an incentive that is going to grow.”

Just how big a payoff the incentive deal provides the dealership’s customers will depend on whether Ford is able to turn itself around in the coming months.

Thanks to the ongoing global financial crisis – and stung by the worst sales slump in 25 years – Ford lost $3 billion in the third quarter and now the Dearborn, Mich.-based company and its two other “Big Three” cohorts are pressing both U.S. and Canadian lawmakers for emergency aid. All three are to submit turnaround plans to Congress this week – a requirement if General Motors, Ford and Chrysler Corp., are to receive $25 billion in U.S. government bailout loans.

Some details began to emerge yesterday (Tuesday), according to a report that runs elsewhere in today’s (Wednesday’s) issue of Money Morning. Among other things, Ford is considering the sale of its stake in Volvo as it seeks to raise cash.

Anthony J. “Tony” Faria, a marketing expert who is the co-director of the University of Windsor/DaimlerChrysler Canada Automotive Research and Development Center (ARDC), told the Windsor Star that the Ford promotion was “interesting” and “attention-getting,” even though the present value to customers was less than $300, a small inducement compared to other incentives and rebates.

“I presume Detroit Three dealers probably will be looking for a lot of creative things they can do to improve traffic through their dealerships,” Faria said.

Promotional flyers for what the dealership portrayed as “confidence sale” exhorted local customers to “be a part of history,” proclaiming that “100 shares is the way forward.” Public interest has already been piqued by the inexpensive promotion, which customers say they like because of the potential for a big payoff, the newspaper reported.

“The 100 shares are an absolute bonus,” customer Tina Reed said, just before she drove away from the dealership in a brand-new charcoal-gray Ford Focus. “I keep an eye on the stock market but now I’ll pay a little more attention.”

JP Morgan Chase & Co. (JPM) credit analysts had rated GM’s distressed debt as a “Buy,” noting that the company – known for such brands as Chevrolet and Buick – was likely going to survive.

Interestingly, Ford has a market cap of $6.09 billion – making the company known for bringing forth such innovations as mass production, the Model T and the assembly line more than twice as valuable as GM, the market-share leader (of the U.S. carmakers). Ford had $172.5 billion in sales last year, and $160.1 billion in 2006.

GM had $181.2 billion in sales last year and $205.6 billion in 2006, according to statistics provided by Google Finance. The company right now has a market value of only $2.8 billion.

Shares in the embattled automaker hovered near $30 in 2001, but have nose-dived since that time. GM’s shares closed Monday at $4.59 each, a decline of 65 cents each, or 12.4%. They have traded as high as $29.95 in the past 12 months.

Ford shares closed Monday at $2.55 each, down 14 cents, or 5.2% per share. They’ve traded as high as $8.79 in the past year.

Whether the price will tank or skyrocket in these uncertain times is anybody’s guess but many, including Faria, the marketing expert, believe the stock is poised for a rebound – especially if the U.S. and Canadian governments can agree on a multibillion-dollar bailout package.

I’ve seriously thought about buying a lot of Ford shares at this price because one of two things is going to happen,” Faria said. “Either Ford is going to fail and you’re going to lose all of it or, if Ford doesn’t fail, the shares, at some point, are going to be worth a lot more.”

Faria said Ford was in better shape financially than GM and Chrysler, but conceded that the fates of all three are intertwined because they share suppliers dependent on business from all three – and because of the need for government aid.

Not everyone sees a bright future for Ford. Indeed, one Web site wag wrote on the Windsor Star Web site that “I have some Penn Central, WorldCom., Enron, Nortel (NT) and Citibank (C) shares if Mr. Chisholm would like to take them in trade for a new car. They are in certificate form, so he can use them to decorate the showroom. Cheaper than buying new wallpaper.”

Source: Hot Stocks: Canadian Ford Dealer Offers Ford Shares to Buyers of Ford Vehicles

Editors Note: “Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the eighth installment of this ongoing investment series.

This from Money Morning:

With America’s “Big Three” automakers all due to submit turnaround plans to Congress today (Tuesday) – a requirement if General Motor Corp. (NYSE:GM), Ford Motor Co. (NYSE:F), and Chrysler Corp., are to receive $25 billion in government loans – I couldn’t help but recall the moment eight years ago when I realized the U.S. auto industry was skidding toward a financial collapse.

I’ve been thinking about that market call of mine a lot of late, particularly after recently reading that JP Morgan Chase & Co. (NYSE:JPM) credit analysts had rated GM’s distressed debt as a “Buy,” noting that the company was likely going to survive.

It was October 2000, and I’d just joined a multi-billion-dollar asset management organization as its head of credit. While most of my experience before this was with very risky and fast-moving emerging markets, this new position was focused on the top tier of the investment market, since the group I was joining had a marked risk aversion and was managed with capital preservation as its main mantra.

“Piece of cake,” I thought to myself.  After decades of deciphering volatile emerging economies, I had “graduated” to analyzing strong companies in the top economies in the world. These credits were all rated “A” or better. And the proportion of our holdings that were not rated “AAA” was a rounding error.

WorldCom Inc., Enron Corp., and the U.S. “Big Three” carmakers were among the companies I had to analyze, as well as some 208 structured investment vehicles (SIVs).  The curious asymmetry was that while companies like Enron and WorldCom were rated “A,” and had tremendous – yet officially unrecognized – risks to the downside, their commercial paper was rated “A1” and “P1,” the highest possible rating offered by leading rating agencies.

The SIVs, Enron, and WorldCom did not resist even minimal analysis. I axed the two companies, as well as the SIVs that did not offer a full guarantee from the sponsor. So I ended up starting with the corporate bonds, by first addressing the largest exposures we had.

A Debt-Focused Tour of America’s “Big Three”

Since the three U.S. carmakers – all carrying “A” ratings on their bonds, and “A1” to “P1” on their commercial paper – accounted for about one-third of all investment-grade paper outstanding, I analyzed them first.  I had a large advantage over my peers in the investment grade industry:  Since emerging-market credits – both sovereign and corporate – were overwhelmingly in junk bond territory, I had seen over years how late the rating agencies were in adjusting their ratings to the credit reality of the issuers in general.

The foregone conclusion in “junk land” was that the rating agencies provided lagging indicators of credit risk.  In addition, having analyzed credits in Argentina with 1% inflation a day, as well as massive, surprising devaluations, I knew how distorted financial statements can become and was highly skeptical.

When I downloaded the balance sheet for General Motor back in the third quarter of 2000, I was stunned. Something just wasn’t right. These numbers I saw just couldn’t be correct.

“Surely I had made a mistake and downloaded the wrong one,” I thought to myself.  “I must have downloaded a subsidiary’s or maybe the parent company’s unconsolidated balance sheet.”

I checked and re-checked.  I had the right one.  The company’s equity-to-assets ratio was only about 2%  – and that was before counting its under-funded pension liabilities. With that deficit factored in, GM had negative equity.

In other words, the leading U.S. carmaker was technically bankrupt.

Now, I wouldn’t even lend money to a bank with such high leverage. And a bank diversifies the risks in its lending portfolio, is highly regulated, and secures a huge amount of its lending with hard assets.

But an industrial company sitting on hoards of car inventories and loans backed by used cars … that nobody particularly liked?  Not a chance.

With such low levels of equity, the ability of a company to withstand an economic shock is almost nonexistent.  So, I searched around for any possible redeeming qualities that I could be missing.  But after a very thorough review, I concluded that we had to drop all three of the U.S. carmakers – GM, Ford and Chrysler.

When I brought my decision to the firm’s chief investment officer, a portfolio manager with years of experience in the investment-grade debt market, and a person I’d known back during my days at Merrill Lynch & Co. Inc. (NYSE:MER), he was unnerved.  He trusted my judgment, but he, like the rest of the market, was confident that each of the Big Three was “too big to fail.”

Nevertheless, with our firm’s overarching commitment to capital preservation, we negotiated a fast wind-down of exposures: We would sell all the long-term exposure immediately, freeze any new exposure and we would not roll over the commercial paper – most of which was due to mature within a couple of weeks.  In this way, all of our Big Three exposure would be gone within weeks, and we were confident each of the three had the cash and near-term liquidity to pay us back.

A couple of weeks later, at a charity function, I happened to bump into the former head of one of the premier asset management organizations in the world.  In a short conversation, I mentioned my private concerns. The gentleman draped an arm across my shoulders and essentially told me that “the Big Three are not going to go bankrupt.”  That was it.  Another too-big-to-fail advocate.

The Too-Big-to-Fail Myth

Evidently, there were reasons beyond mere creditworthiness that led this very smart man – and others – to keep ignoring the fact that the automotive emperor had no clothes.  The pre-eminent one is the “too-big-to-fail argument,” and those who make that argument are trafficking in the moral hazard trade.  Yet, even today, GM on its website ardently contends that it is indispensable to the U.S. economy, hoping to persuade U.S. taxpayers to throw good money after bad.

(We’ll find out how Congress feels about that argument after GM, Ford and Chrysler submit their plans today. It certainly won’t help that today we’ll also likely find that November sales from the major automakers show only a limited bounce from 25-year lows.)

The other argument is that the auto industry is “strategic” to national interests.  That is to say: How can a country defend itself if it produces no vehicles?  And what about advanced transportation and classified technologies research?

But that argument does not hold up under scrutiny, either.

As eminent economist Martin Feldstein has reminded us, giving the Big Three $25 billion will last less than a year. The reason: They are burning through about $7 billion each a quarter.

Clearly, forcing the three carmakers to restructure will be in everybody’s interest.

Through bankruptcy – with some, minimal government intervention – we should force the inevitable restructuring to take place. As a result of that restructuring, worker compensation levels will be brought into line, employee and retiree health benefits will be reduced to lower-but-still-competitive levels, any dividends will be eliminated, and executive payouts and perks will be capped. How far must this go?

That’s easy – keep cutting until the companies are restored to health and, most important of all, to a state of long-term viability.

This does not mean that the Big Three will disappear. What will disappear is corporate waste. The companies will restructure/continuing profitable activities and liberating resources from unprofitable ones to expand future development.  This has been done successfully – and en masse – in many “strategic” industries, such as the steel business in the United States, and telephony, utilities, energy, aerospace, and many others that were restructured in the 1990s in Argentina, Brazil and South Korea.

There is no reason why each of the Big Three – each currently the laughingstock of the global auto industry – should not regain their leadership positions, as measured by profitability and technological prowess. In this way, GM, Ford or Chrysler – or even all three – can create good, secure jobs and contribute to the U.S. economy, rather than detracting from it.

To be fair to GM and the others, they all have attempted to restructure. They’ve secured agreements with the United Auto Workers union that were designed to control costs. And they’ve tried to launch newer, better vehicles.  But those agreements are too little/too late, and the sands have run out of the hourglass.

Union leaders from GM, Ford and Chrysler have now scheduled an emergency session for tomorrow (Wednesday) in Detroit as the companies plan to seek concessions from the United Auto Workers to help land those win $25 billion in government loans, Bloomberg News reported yesterday (Monday). Participants will be asked to reopen a 2007 labor agreement to consider concessions. GM, which has said it may run out of cash to meet its obligations, wants to stop paying union workers when plants are closed and there isn’t any other work for them to do. Now Ford and Chrysler are expected to ask the UAW for similar concessions as part of their bid for the government aid package, Bloomberg said.

All three of the American carmakers were technically bankrupt since at least the time of my first analysis near the end of 2000, and the union agreements still did not bring compensation down to levels comparable to that of their competitors. Now the U.S. automakers are on life support.  There is no time left for gradualism.  They missed that window long ago and the costs imposed on all U.S. taxpayers figure to be huge.

The current predicament in which GM, Ford and Chrysler now find themselves is not only their own fault, as we’ve now already been subsidizing the unions for far too long.

Are Unions to Blame?

One of the biggest reasons Detroit’s Big Three have run out of capital is the extraordinary compensation that has been paid out to unionized workers in the United States.

Even in the last reported quarter, when the economies of Europe and Asia had slowed dramatically, GM was almost breakeven in those two regions and actually had 10% profit growth in Latin America, Africa and the Middle East, where GM also has unionized work forces. But the company is losing money in the United States.

That’s because the GM pays about $75 per hour – $156,000 a year – to its assembly line employees.

And because of that, the Big Three are lagging far behind in technology investment. That has not only damaged the auto-related technology industry, but has decreased productivity and innovation, delaying the shift to more fuel-efficient technologies.  And because they have jointly held the market leadership, they set prices high, allowing foreign competitors to undercut them.

These phenomena have increased the costs of transportation for all Americans for decades.  Americans have overwhelmingly voted with their dollars by buying foreign brands, which has contributed to our growing trade deficit.

Ultimately, inefficiencies in the auto industry have imposed huge costs on the rest of the economy, putting the Big Three at a competitive disadvantage that has hurt profits, cost the economy jobs, and opened the door to foreign companies to export U.S. dollars back to Germany and Japan (and now South Korea and China).

GM lost $21.3 billion in the third quarter and burned through about $7 billion in cash.  It has only about $16 billion in cash left, and already its liabilities are $60 billion larger than its assets, which means that GM has negative equity.

And the current quarter will be worse.

The bottom line is that GM is essentially bankrupt – and has been for years.

At this point, GM should – like so many companies before – have to restructure its costs to a point that allows it to be competitive before receiving a single taxpayer dollar.  Otherwise, we are just throwing good money after bad and it won’t be long before GM comes crawling back for more.

I just hope that the politicians and government officials in Washington are wise and determined enough to control the situation, and force the bitter medicine down the company’s throat.

To Buy, or Not to Buy

In this environment of high uncertainty, I would not go near any GM securities.

However, highly sophisticated players may consider making a very small bet, in one of several ways. With GM’s bonds and credit default swaps trading at near-bankruptcy levels (15 cents on the dollar), it may be attractive (albeit highly speculative) to buy GM’s bonds, in the hope of converting these debt securities into the debt-and-equity of a newly restructured General Motors. Over the course of a couple of years, this could turn out to be extremely profitable, but only if GM’s work-force wage-and-benefits costs are brought into line with the company’s global rivals – and if the U.S. economy recovers. Among the many financial scenarios under review, GM’s board of directors is reportedly considering an option that would grant current bondholders equity in a restructured company in return for maneuvering room, according to media reports.

Reuters reported that GM’s bonds fell nearly 12% early yesterday (Monday) as investors waited for the automaker to submit a new turnaround plan that might actually have a chance of winning lawmaker support. GM’s 7.125% notes due in 2013 fell to 23 cents on the dollar, down from 26 cents on Friday, according to MarketAxess. As we noted earlier, GM is due to submit that plan by today.

When JP Morgan’s credit analysts made their market call last month, GM’s benchmark 8.375% bond due 2033 has dropped to 25.75 cents on the dollar, which was down from 36.5 cents at the end of October, MarketAxess said. The bonds had traded at more than 80 cents on the dollar at the beginning of the year and currently yield 32.5%.

In the case of selling credit default swaps, an investor would get paid some 80% to 85% of the value they are “insuring” up front. If GM gets bailed out, which is an increasingly likely scenario, that investor would keep the full premium and walk away.  And in the case of default, that investor would have to pay the buyer 100%, therefore losing some 15% to 20% after the default, but getting the bonds he is insuring in exchange for that loss.  We would then take the bonds into the restructuring as noted above.

I would not buy the actual GM shares, even though I have friends in high places in finance that still believe in the too-big-to-fail theory. My concern with GM’s stock is that there would be a very strong chance the company’s equity gets totally wiped out in a bankruptcy, or at least heavily diluted as a result of any government infusion the company receives.

GM’s shares closed yesterday at $4.59 each, down 65 cents each, or 12.4%. They have traded as high as $29.95 in the past 12 months. The company right now has a market value of only $2.8 billion.

Source: Buy, Sell or Hold Insight: GM Remains a High Risk Profit Play – Even as it Files its Turnaround Plan Today

Congress tells us, if General Motors (NYSE:GM), Ford (NYSE:F) or Chrysler want any federal money, they had better be able to produce a strong plan to show how the cash infusion will save their companies.

Again, that is what Congress tells us.

In reality, we know the Big Three can show up with a plan scribbled down on a cocktail napkin and the money will be theirs. Washington is merely politicizing the whole ordeal. It is all but certain that a sizeable check will be written, but nonetheless, Detroit has to put on a dog and pony show to make all of us taxpayers feel better about the ordeal.

Part of the show is coming from Ford today. It announced it is discussing the notion of unloading its Volvo stake, one of the strongest brands in the company’s product portfolio. A few years ago, the brand was valued at several billion dollars. Today, however, analysts estimate Volvo is worth somewhere around a billion dollars.

Do you really think Ford is willing to take the hit? Or is this merely pandering that makes the company look like it is taking action before it heads to Washington this week?

One big, expensive chess match

Volvo is simply a pawn in Ford’s political chess game against Washington. It has absolutely no intent on unloading one of its strongest brands.

While these games are important for shareholders to watch, what is more important is watching what share price does during these so-called news events. Today’s news about Volvo barely moved share price.  Wall Street knows it is a sham.

We know Detroit will get its cash. We know Ford will remain the nation’s strongest automaker. And we know the debate surrounding the industry will continue for a long, long time.

In late October, when shares of Ford were trading for just about $2, I recommended buying shares of the company. After all, it was a chance to buy a Blue Chip company at penny stock prices.

Shares of Ford are still cheap, but they are selling for a 50% premium over my original recommendation. Take today’s news as an invitation to sell your shares for a profit.

Ford still has an opportunity to make significant long-term gains, but right now the risk outweighs the potential reward. It is best to lock in these significant gains and wait out the storm.

There are better ways to make money while Washington and Detroit play their games.

Source: Making money: Ford (NYSE:F) hands us 50% gain

Detroit seems to be suffering from decades of reliance of fuel-guzzling behemoths that fell out of popularity as oil hit historic highs. The champions of green, including big media, now say that if only Detroit could follow in the footsteps of Toyota, Honda and other hybrid pioneers, then American buyers will return to the showrooms in droves.

This is not entirely true.

The issue is not confined to high mileage. The other factor ignored in this green wave of propaganda is quality. After all, what if Detroit did manage to turn around the old battleship in enough time to build green cars – but those cars were just as junky as the cars coming out of Detroit today?

While green is certainly top-of-mind in shell-shocked American consumers, it seems that no one is talking about the lagging quality of American automakers in this new generation of smaller, thrifty vehicles.

After all, don’t Americans buy foreign cars not only for better mileage but for their superior quality?

In looking at the Consumer Reports Most Reliable Cars of 2009, only three American cars made the cut in a grand total of 47 vehicles.

Detroit didn’t even make a decent showing in it’s traditional stronghold of trucks and SUVs. Only the Lincoln MKX ranked in the category of Mid-Size SUVs. The categories of Large SUVs and Pick-up Trucks were a clean sweep by the Japanese.

When the CEOs of the Big Three came hat-in-hand to Congress last week, they talked about payroll reductions, discontinued pensions and plans to build greener cars. They even had the audacity to ask Washington for R&D subsidies for new battery development.

But to the best of our knowledge, they never promised to build better, more reliable vehicles.

Yes, the green flag wavers can climb onto their soap boxes and pontificate about Detroit’s bad karma. While it’s certainly true that Detroit must compete with the Japanese and Koreans on fuel economy, the Big Three also need to make these new smaller cars better than ever before.

If we don’t see Detroit’s new, green vehicles showing up in Consumer Reports Most Reliable Cars of 2011, then Washington and American investors are wasting their money.

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put down my tumbler of 12-year old single malt and my dog-eared edition of Gibbon’s Decline and Fall, abandon my armchair, and trade the comfortable sweater and slippers of the misanthrope for the sport jacket and slacks of the supposedly social.

Fortunately, human beings are unable to recall the sensation of pain (it’s true: look it up). And so most of these events are immediately forgotten. However, I attended such an odd gathering the other night that is has stuck in my mind.

It wasn’t exactly seasonal per se. Nor was it another of those “buying parties” wherein we are feted with Vienna sausage and crab dip while a dowager of indistinct age pitches time shares in Boca, jewelry or Tupperware party bowls. (I’m told that one such get together saw the demonstration of a line of risqué undergarments. However, I was not invited to that one. And it’s probably just as well.)

Getting Rid of Excess Baggage

In many ways, in fact, it was the harbinger either of a new age or perhaps the return to an older age. You see, the ladies were there not to buy, but rather to sell stuff. Specifically, excess gold jewelry.

Please keep in mind that I do not live in a poorer quarter. Our town’s historical Main Street has no pawnshops nestled amongst its antique dealers. (It does have a rather nice used bookstore, though, where I recently stumbled upon a lovely 1930 edition of Voltaire’sCandide.)

And yet, our hostess had invited an assessor of used gold items – a man prepared to dole out cash (checks really) for broken chains, undersized rings and mismatched earrings.

Having nothing to offer the gentleman beyond my wedding ring (and I am not that greedy – or stupid), I abandoned the living room to the ladies and joined the other spouses around the downstairs wet bar.

Have You Heard About the “Black Widow Trade”?

Here’s how you can turn Wall Street’s PAIN into a 146% GAIN in 12 weeks.

Read on now for detailed trading instructions…

The New “Rich”

Even here, I witnessed a marked shift in the conversation. Gone was the usual bragging about the size of one’s new house. So too, the crowing of recent market gains. (No shock there!) The horsepower of this year’s offering from Cadillac? Fuggeddaboudit!

Instead, the hot subject was the new frugality. One gent was touting how he could up his Honda’s gas mileage by coasting to stop lights. Another was alerting everyone to a large discount on driveway macadam from a building supplier in the next county.

A third fellow was all full of vinegar as to how he had just dressed down his teenaged daughter about her grades: “She won’t qualify for a college grant if she gets another B in economics.”

Even more disorienting: Suddenly, my hoary old scold (meant solely to discourage further financial inquisition) that “the best gain the average investor could hope to achieve could be had by paying off his credit cards” was the talk of the room!

Can it be that “cheap” is the new “rich?”

The American Wallet Snaps Shut

Certainly my neighbors are not unique. Gob-smacked by years of rising prices, the American wallet has finally snapped shut. Consumer spending in September fell some 0.3%, the largest single month drop in the past four years. Add in July and August, and you have the “worst” quarter in 28 years.

I have put quotes around worst, because the true historical value of this sea change has yet to be determined. We may be witnessing the demise of our great consumer culture.

This is disastrous news for those who are tied closely to the many endeavors that depend desperately on the American need for new crap.

Which companies might tumble when pointless spending falls from grace? Certainly the direct purveyors of chromed junk are already suffering mightily.

Detroit Still Can’t Buy a Clue

GM (NYSE:GM) and Chrysler are attempting to figure out which one has enough loose cash left to buy out the other. Borrowing for the deal in this ultra-tight credit market is simply out of the question.

Meanwhile, poor old Ford (NYSE:F) is still banking on selling one more generation of humongous pickup trucks to commuters and construction workers who aren’t even sure if they have a job to commute to.

And speaking of borrowing, GM’s once mighty (indeed sole) profit center, GMAC, is trying to redefine itself as a bank holding company so as to qualify for a piece of Washington’s trillion-dollar largesse.

The Only Profits in This Vast Empty Space

It appears that various other sellers of overpriced bric-a-brac and gewgaws are in the soup as well. The only players in the retail “space” who have shown any strength at all during this “season of saving” are Wal-Mart (NYSE:WMT) and the 99 Cents Only Store (NYSE:NDN).

The rest, from high to low, Nordstrom (NYSE:JWN) to Kohl’s (NYSE:KSS), are hemorrhaging red ink all over the New York trading floor.

Looking to the near term, most of American retail still looks like viable short candidates. My recommendation: Buy puts every time these guys poke their heads out of their little rat holes to spin their little tales of “better times coming in January.”

A Change in Values?

However, any old veteran of tighter times and previous ideas as to the value of thrift, might very well view the sudden decrease in spending, increase in wages, and spike in actual savings (Real savings! Remember them?) as a sign of better times to come.

Can you imagine a time when bankers were the type of men you could actually trust with your savings? Or how about a market that valued companies that actually made profits by providing genuinely valuable goods and services?

Goodness. The cherishing of True Value could even mean the end of shallow Technical Analysis!

Naaah: Never gonna happen.

Source: The Return of Real American Value?

This from Today’s Financial News:

Sometimes you have to wonder what goes through the head of some of the world’s most renowned investors. Is it possible that billionaires make emotional moves just like so many other everyday investors?

While billionaires certainly make the same mistakes you and I make. I do not think that is the case with Kirk Kerkorian.

After shelling out a billion dollars to get his hands on a 6.5% stake of Ford (NYSE:F), Kerkorian and his investment vehicle, Tracinda, are backing away from their stance.

On Monday, Tracinda unloaded over seven million shares of the troubled automaker for $2.43 per share. Today, it announced it is looking to possibly sell the remaining 133 million shares.

Now that the Street is on to Kerkorian’s plans, Tracinda will be lucky to sell its shares at a price anywhere close to yesterday’s figure. Shares are already down by about 3% on the news.

Kerkorian is taking a severe loss on this billion-dollar investment. After all, he paid as much as $8.50 per share for a large chunk of the shares. Right now, his losses are strictly limited to paper, but as soon as he puts in those sell orders, he will be locking in hundreds of millions of dollars in losses.

A lesson to learn

So why is Kerkorian willing to unload when shares of Ford are selling so cheaply. He claims he has changed his investment strategy and is looking to reallocate his money to other sectors of the economy that he believes hold value. Chiefly, he is looking to invest in gaming, hospitality, and the oil and natural gas sectors.

Moving money into the gaming sector is no surprise. After all Kerkorian made much of his fortune from the growth explosion in Las Vegas. He even married a former Vegas dancer, for Pete’s sake.

Really, Kerkorian’s move offers a good lesson to investors. Sometimes it is better to take your losses and move on.

In this case, the billionaire realizes his position in Ford will not turn profitable overnight. He would rather put his ego aside, take the losses, and move his money into a position he is familiar with and is likely to make back his losses. Sometimes you just have to cut and run.

Now, for you folks thinking that Kerkorian is crazy to abandon Ford at these levels, you are right. Shares of the company are dirt-cheap. If you can get in at today’s price, you have a great shot at profits.

But if you got in at over $8 like Kerkorian, and expect to see profits, you will be sorely disappointed. The automaker will not increase in value by 300% anytime soon.

A move of 50% or more, however, could very well be in the cards. That means if you buy those shares Kerkorian is looking to unload, you could have a significant shot at profits.

Just like many other aspects of the investing world, profit potential is a matter of perspective. Chances this billionaire sees things a bit differently than the average investor.

Source: Kerkorian Folds: His Loss from Ford (F) Can Be a Win for You

– The bill passed by the Senate includes provisions to increase the FDIC’s bank deposit insurance limits and a $150.5 billion package tax cuts.

– Despite the passing of the bill in the upper house, US stock futures slipped this morning. MarketWatch reports that “S&P 500 futures fell 9.9 points to 1,158.50 and Nasdaq 100 futures dropped 5.5 points to 1,573.25. Dow industrial futures dropped 71 points.”

– There are reports that the Fed is mulling another rate cut to further juice up the US economy with easy credit.

– The ECB, however, has held rates steady in the eurozone, despite a deteriorating economic climate.

– The chill wind blowing through the US has hit auto sales hard. “US auto sales dropped below 1 million last month for the first time in more than 15 years as some consumers struggled to get financing and others were frightened away from showrooms by bank failures and turmoil on Wall Street,” reports AP.

– Ford’s (NYSE:F) US sales “fell an unadjusted 34.6% in September to its weakest levels of the year due to a weakening US economy and tight credit conditions,” according to Reuters.

– The crisis is also pumping up junk bond yields as  Yields over benchmark rates on US junk-rated corporate bonds have widened to the highest on record, according to Merrill Lynch data.

With borrowing costs soaring, the market for junk bonds has all but shut. High-yield borrowers sold $845 million of bonds in September and $674 million in August, the slowest two-month period in at least a decade, Bloomberg data show. Issuance this year totals $59.8 billion, about half of last year’s tally.

–  Dig into into the US economy’s fundamentals doesn’t exactly inspire hope, either. Here are three data points from yesterday’s 5 Min. Forecast that are ominously bearish:

1) U.S. manufacturing activity plummeted in September. The Institute for Supply Management (ISM) says production sank to a score of 43.5 during the month. That’s the lowest level since 2001. A score of 50 is considered mildly healthy.

2) 8,000 jobs were lost in September. Most economic doctors expected 55,000 lost jobs, so this reading is perceived to be good. Overall, according to the employment consultants ADP, the economy has shed 80,000 jobs in 2008.

3) After taxes and inflation, real disposable income fell nearly 1% in August — the third monthly drop in a row. At the same time, the Commerce Department’s measure of inflation, personal consumption expenditures (CPE), rose to 2.6% — a 13-year high.

But Lynn Carpenter in Investor’s Daily Edge cautions investors against confusing a low stock price with a bargain: “Potential, not price, is the metric to follow when you’re tempted to bottom fish.”

That’s why insurer American International Group (NYSE:AIG) is a potential bargain and Ford Motor Company (NYSE:F) is not…

The trick is finding beaten-down stocks that are showing the potential for company profits. Unless the company has hopes of making money or at least paying you a dividend, its stock is no bargain at any price.

“It can’t fall any farther.” “It’s too important to fail”… these are follies. Big companies fail all the time. Just Google “Barings” if you want a spectacular example of a venerable company that went from blue chip to cow chip in record time. 

If Ford doesn’t sell cars, Toyota will. X number of cars are going to be bought next year, and even the old folks who used to only buy American are driving Hondas, Toyotas and Nissan’s these days. If AIG doesn’t sell you property insurance, ING, State Farm or AXA will. Where there are buyers lined up, competitors will come along and do business. This is how capitalism works.

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But with stocks like AIG and Ford so far down from their highs, a lot of investors are forgetting the reality of the business behind the stock. They see a cheap share that could make them thousands of dollars climbing back from today’s lows to reach yesterday’s highs again. It’s half of a right idea. What’s to lose?

A lot. Maybe everything. If the worst happens, Ford could follow Studebaker. AIG could go the way of American Mutual. It’s good to get a cheap stock, but it’s not a great idea in itself. A great move is getting a terrific company during a bad patch or one that others have underestimated and priced at a discount to its true potential. The key is in knowing the potential. It has zero relationship to a company’s historical share price.

Potential, not price, is the metric to follow when you’re tempted to bottom fish. Let’s walk through two contrasting cases.

This week, AIG hit an 18-year low. Analysts expect the insurer to earn $4.94 per share next year. Insurance companies tend to command low P/E ratios, between 12 and 17 for property and casualty insurers. Go to the low end. Consider that analysts are too optimistic and figure on $3.40 per share in earnings, a 25% discount.

Then take the very lowest historical P/E of 12. That makes AIG worth a theoretical $40.80. At today’s price of $19, it does represent a probable value… if the earnings estimates are even close. The company also has good long-term earnings potential if its derivatives write-downs don’t kill it first. More investigation is needed, but this is certainly worth checking.

Now look at Ford. Analysts expect -$1.81 in earnings from Ford this year and -.78 next year. We’ll follow the same procedure – say it’s 25% worse. That’s -$.98 in earnings for 2009. There is no P/E because there are no positive earnings. There’s no dividend anymore, either. What about price to book value, a deal if it’s less than 1.0, right? A decent level might even go to 1.2 times book value per share like Daimler or Honda. The problem is that Ford’s so far in debt, its liabilities outweigh its assets and its book value is negative, too.

No prospects of earnings foreseeable, no dividend, outrageous debt, book value under water… what would an investor hope for in Ford? Even Lee Iacocca isn’t that brave. Ford’s stock may be just north of $4, but it’s no bargain. If you want to take a bet on that, you are far braver than I am. You have to believe in magic. Ford is years away from financial health, if it ever gets there. As for a government bailout, the only one I see is one that protects the workers in its shattered pension plans.

Somebody may make a killing buying Ford today and reflecting on his coup 10 years from now, but it’s a long shot.

Source: The Secret to Bottom Fishing Distressed Stocks