GM once an iconic symbol of American industry has now fallen far from its highs of the 1950s and 1960s. In 2008 GM was the world’s second largest automaker in sales. On June1, 2009, General Motors filed for a government-assisted Chapter 11 bankruptcy protection. It is the third largest bankruptcy filing of the world. It can be expected that there will be significant changes with GM as it undergoes this restructuring. Hopefully it will emerge a more efficient and effective company that will rival foreign auto makers that have become so successful.
Taxpayers in the U.S. will end up with a 60% ownership in GM, with the union, creditors and the Canadian government owning the remainder of the company. GM will be getting rid of Pontiac, Saturn, Hummer and Saab, this will hopefully serve to remove unsuccessful brands and help to alleviate GM’s infamous brand overlap. GM will also close more than 2,000 of its 6,000 U.S. dealerships by 2010. That could result in more than 100,000 additional job losses.
GM as of June 8 has been removed from the Dow Jones industrial average, a distinction it has held since 1925, this is a symbol of how the iconic auto makers has fallen. The company will be replaced by technology giant Cisco Systems (CSCO). The new GM will have $17 billion in debt, rather than the $54.4 billion it had outstanding as of March 31. The unions' new contracts with the company and underfunded pension funds will not be cancelled or removed. The most important thing is not that GM lays off some workers and makes one time sales of brands but rather it must strive to become more competitive and rethink its business model. If GM does not offer more competitive vehicles then it will have similar problems in the future. GM will have to create a niche for itself and specialize in it, something that other competitors will not be able to do as well.
Recently GM’s brands, Opel and Vauxhall have been fought over by Magna, Belgium-based financial investor RHJ along with other bidders. German Chancellor Angela Merkel expressed her regret at General Motors' failure to choose a buyer for its German unit Opel, and said that a decision was "urgently" needed for the carmaker's future(Reuteurs). The German government wants to be assured that Opel will not shed a substantial amount of its 25,000 workers. Berlin has made clear they want Magna to be the buyer and are set to provide 4.5 billion Euros ($6.4 billion) in state aid to make it happen. Magna remains the favored candidate as of now.
Depending on how this deal will go through it can have a substantial impact on the auto industry. Certain companies may become more powerful as others become weaker. A new global giant may emerge, or historical iconic names may disappear but it is without a doubt that this financial crisis has reshuffled the auto industry and hopefully the public will benefit from more efficient and competitive companies. GM needs to standout from the crowd with projects such as the volt which will also symbolize to consumers that GM is leading the way for vehicles of the future.
http://money.cnn.com/2009/06/01/news/companies/gm_bankruptcy/index.htm
http://www.reuters.com/article/newsOne/idUSTRE57L0KF20090823
Tuesday, August 25, 2009
Thursday, August 13, 2009
Economic recap
This is an article I wrote to summarize a critical period in recent economic history.
An Economic Overview of 2008-09
The year 2008 was characterized by one of the most dramatic macroeconomic conditions on record. After initial expectations that the crisis would be contained to the financial sector of the leading economies of the West, its universal and global nature became evident as the year wore on. In spite of the widespread freeze of credit markets, the first half of the year was marked by a great deal of positive news for emerging markets and for key commodities, such as oil, which experienced substantial gains. The year began with signs of a modest slowdown in the US, triggered by the sub-prime woes and declining house prices as mortgage defaults soared. This depressed the dollar, which, in turn offered some prospect of improvement for the substantial US external deficit. Hopes were high that an effective policy response would serve to halt the emerging crisis; however, such expectations began to diminish as it became obvious that the original $168bn tax rebate in the US had a minimal impact beyond a short-lived stimulus. Furthermore, the all-around surge in commodity prices that saw crude oil hitting a record high in July 2008 and the subsequent inflationary pressures added to the economic pressure on the consumer.
The crisis soon entered a turbulent phase, reaching its peak in September, when increasing insolvency concerns led to emergency bailouts of several major financial institutions in the US and elsewhere. Of particular importance was the chaotic collapse of Lehman Brothers, which is now widely recognized as a major catalyst in the further deterioration of the situation. The policy responses by the US and European authorities ran into trillions of dollars of rescue packages, bank guarantees, and quantitative easing but did relatively little to boost liquidity or confidence in the world’s major economies. There was growing realization that the de-leveraging drive by financial institutions would be a long and far-reaching process; this was evident from the TED spreads (spread between a 3-month US T-bill rate and LIBOR).
The prospect of significant demand destruction ultimately reversed the prospects for commodities and the rising risk aversion changed market sentiment regarding emerging markets. Stock markets virtually across the emerging world crashed as they joined the global slide. The close of 2008 presented a grim picture of the key economies of the world in recession.
The Institute of International Finance (IIF) went as far as to predict a contraction of the global economy in 2009 by 0.4%. The US economy is expected to decline by 0.9% while the downturn will shave 2.9% off the UK GDP.
It would not be inappropriate to mention Mr. Madoff and his Ponzi scheme. Bernard Madoff was arrested on orchestrating the largest Ponzi scheme ever, potentially scoring $50 billion. The incident not only crippled Wall Street’s credibility but also showed potential leaks and inefficiencies in US regulation.
This year, 2009, is looked to with much hope and fear. Investors are asking, "Will the recession end, or will it continue?" I am certain that we will receive some positive surprises this year from the market, and perhaps the economy as a whole. The Bank of Canada lowered the overnight rate target by 0.5% to 0.5% and the Bank Rate is now 0.75%. "The Bank will continue to monitor carefully both economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term." (National Post) This should hopefully help the consumer find cheaper financing which should aid consumer spending.
Perhaps one of the most incredible events thus far in 2009 was the financial rally which started in early March. During the month of March, Citigroup Inc.’s share appreciated 127%, the financial sector appreciated 17% during the same period—something not entirely anticipated given how badly beaten up the stock was in 2008.
Consumer confidence in the US for the month of April so far has seen a tremendous improvement compared to the month of March. The final consumer confidence level is expected to be 30% higher than that of March (according to wwwdailycommercialnews.com), perhaps a good indicator that consumers may start spending again.
An Economic Overview of 2008-09
The year 2008 was characterized by one of the most dramatic macroeconomic conditions on record. After initial expectations that the crisis would be contained to the financial sector of the leading economies of the West, its universal and global nature became evident as the year wore on. In spite of the widespread freeze of credit markets, the first half of the year was marked by a great deal of positive news for emerging markets and for key commodities, such as oil, which experienced substantial gains. The year began with signs of a modest slowdown in the US, triggered by the sub-prime woes and declining house prices as mortgage defaults soared. This depressed the dollar, which, in turn offered some prospect of improvement for the substantial US external deficit. Hopes were high that an effective policy response would serve to halt the emerging crisis; however, such expectations began to diminish as it became obvious that the original $168bn tax rebate in the US had a minimal impact beyond a short-lived stimulus. Furthermore, the all-around surge in commodity prices that saw crude oil hitting a record high in July 2008 and the subsequent inflationary pressures added to the economic pressure on the consumer.
The crisis soon entered a turbulent phase, reaching its peak in September, when increasing insolvency concerns led to emergency bailouts of several major financial institutions in the US and elsewhere. Of particular importance was the chaotic collapse of Lehman Brothers, which is now widely recognized as a major catalyst in the further deterioration of the situation. The policy responses by the US and European authorities ran into trillions of dollars of rescue packages, bank guarantees, and quantitative easing but did relatively little to boost liquidity or confidence in the world’s major economies. There was growing realization that the de-leveraging drive by financial institutions would be a long and far-reaching process; this was evident from the TED spreads (spread between a 3-month US T-bill rate and LIBOR).
The prospect of significant demand destruction ultimately reversed the prospects for commodities and the rising risk aversion changed market sentiment regarding emerging markets. Stock markets virtually across the emerging world crashed as they joined the global slide. The close of 2008 presented a grim picture of the key economies of the world in recession.
The Institute of International Finance (IIF) went as far as to predict a contraction of the global economy in 2009 by 0.4%. The US economy is expected to decline by 0.9% while the downturn will shave 2.9% off the UK GDP.
It would not be inappropriate to mention Mr. Madoff and his Ponzi scheme. Bernard Madoff was arrested on orchestrating the largest Ponzi scheme ever, potentially scoring $50 billion. The incident not only crippled Wall Street’s credibility but also showed potential leaks and inefficiencies in US regulation.
This year, 2009, is looked to with much hope and fear. Investors are asking, "Will the recession end, or will it continue?" I am certain that we will receive some positive surprises this year from the market, and perhaps the economy as a whole. The Bank of Canada lowered the overnight rate target by 0.5% to 0.5% and the Bank Rate is now 0.75%. "The Bank will continue to monitor carefully both economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term." (National Post) This should hopefully help the consumer find cheaper financing which should aid consumer spending.
Perhaps one of the most incredible events thus far in 2009 was the financial rally which started in early March. During the month of March, Citigroup Inc.’s share appreciated 127%, the financial sector appreciated 17% during the same period—something not entirely anticipated given how badly beaten up the stock was in 2008.
Consumer confidence in the US for the month of April so far has seen a tremendous improvement compared to the month of March. The final consumer confidence level is expected to be 30% higher than that of March (according to wwwdailycommercialnews.com), perhaps a good indicator that consumers may start spending again.
Saturday, August 1, 2009
'Cash for Clunkers'
This has to be one of the few consumer spending incentive programs coming from the US that really excities me. The best thing about this program is that it actually seems to be working, and not only that, it is actually supporting the auto industry which has been struggling recently. The Car Allowance Rebate System, provides credits up to $4,500 for the purchase of a new car when turning in an older vehicle to be scrapped. Lawmakers had expected the first $1 billion to generate roughly 250,000 vehicle sales and last until about Nov. 1. The Department of Transportation said more than 200,000 sales have come from the program, and this could not come at a better time for the auto industry. Additional funding for the program has been passed in the house and is now waiting for senate approval. I believe that this is something that will pass especially given the success of the program relative to other consumer spending stimulus programs. One interesting opportunity I see with all of this is Auto Nation ticker: NYSE:AN. This has been one company that has benefited from this incentive program, and has exposure to a wide variety of makes of cars. I am personally going long this stock, as it is well poised to benefit if the additional funding is passed for the Car Allowance rebate Program. This will be an interesting one to watch.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a1HW9CtfwJkg
http://www.bloomberg.com/apps/news?pid=20601103&sid=a1HW9CtfwJkg
Saturday, July 25, 2009
Current Holdings In My Portfolio
My current holdings in my mock portfolio consist solely of Berkshire Hathaway (BRK) class A and class B shares. The company's core business is insurance, which includes property and casualty insurance, reinsurance and specialty insurance but it also oversees and manages subsidiary companies. I find BRK an attractive investment for the follwing reasons:- It is a long standing company with a very solid track history
-It is currently under the supervision and direct influence of perhaps one of the best investors of all time, Warren Buffet.
-Diversified portfolio of holdings including but not limited to: retail, utilities, building products, financials, and retail.
- Berkshire has recently purchased preferred stock in Wrigley, Goldman Sachs, and GE totaling $14.5 billion.
In my opnion BRK is well poised to recieve a steady stream of revenue and profit greatly from a general market recovery in the future, given the nature of all the businesses that it controls. My timeline to get out of this investment is 2 years or a full economic recover, whichever comes first.
Thursday, July 23, 2009
My Portfolio
I will be posting information regarding my mock online portfolio regularily, and will be keeping you up to date with specific trades I have made and strategies I am applying to my portfolio. I will also be providing a detailed list of all my transaction frequently so that you can keep track of my performance. This will hopefully serve to give people a few ideas. Here is just a quick glimpse of my historical performance, I will also provide a more detailed break down of transaction history in a future post along with an explanation of my overall strategy.
Monday, July 20, 2009
Guides & How-Tos
One of the most common question that I often recieve is: "how do I invest my money?", "what is the best strategy for my RRSP?", "what stocks will get me rich?". Now I would like to start off by saying that different things are right for different people and it would be wrong to suggest a particular investment or strategy as a perfect solution for every individual. What I do intended to do, is to create a series of informative guides and resources as to help individuals gain a better understanding for investing and finance. Along with this I will also post a series of links to websites I have personally found useful. These will be posted as I work on them during the upcoming weeks.
GM gets three final bids for Opel
The three final bidderes are Canadian car parts maker Magna, Belgian-based investor RHJ International and China's Beijing Automotive Industries. Talks have been stalled after Magna wanted intellectual property and distribution rights in Russia to be included in the deal.
This is something that GM is not willing to compromise on. There is some controversy regarding Vauxhall plants and potential lay offs, Magna promised no plant closing until 2013. RHJ would save plants but may force pay cuts.
"GM is expected to give its preliminary findings on the final bids to the German and other European governments on Wednesday.
Next week, GM is expected to have a recommendation ready on which bid to accept. That will be put before its board and the US Treasury, which has a majority stake in GM." (BBC)
In my opinion this is excellent news, the faster that GM will be able to becomer a leaner and more efficient company the better it is for shareholders. In this case it will mean that the majority shareholder (the US government) will be able to let go of GM sooner than later. GM successfully streamlining itself will also be a strong symbol to the American consumer and the rest of the world that big US business will be able to recover and hopefully be better than before the recession. If GM can focus on new green projects such as the Volt, and eliminate the high level of overlap in their product lineup they may once again become a substaintial force to rekon with, all without having to give massive discounts to entice consumers.
http://news.bbc.co.uk/2/hi/business/8158569.stm
This is something that GM is not willing to compromise on. There is some controversy regarding Vauxhall plants and potential lay offs, Magna promised no plant closing until 2013. RHJ would save plants but may force pay cuts.
"GM is expected to give its preliminary findings on the final bids to the German and other European governments on Wednesday.
Next week, GM is expected to have a recommendation ready on which bid to accept. That will be put before its board and the US Treasury, which has a majority stake in GM." (BBC)
In my opinion this is excellent news, the faster that GM will be able to becomer a leaner and more efficient company the better it is for shareholders. In this case it will mean that the majority shareholder (the US government) will be able to let go of GM sooner than later. GM successfully streamlining itself will also be a strong symbol to the American consumer and the rest of the world that big US business will be able to recover and hopefully be better than before the recession. If GM can focus on new green projects such as the Volt, and eliminate the high level of overlap in their product lineup they may once again become a substaintial force to rekon with, all without having to give massive discounts to entice consumers.
http://news.bbc.co.uk/2/hi/business/8158569.stm
Sunday, July 19, 2009
New US home starts surge in June
There seems to be a glimmer of hope for the US housing sector, one of the major drivers for the US economy. However it may be a little too early to start hoping for a full recovery. Yes I know that our econ textbooks told us that housing starts are a leading indicator, but given that we are in an abnormal recession I would not place all my eggs in one fiscal basket and count on an economic recovery simply because there are some signs of a turnaround in US real estate.
New US home starts surge in June
"There are signs confidence may be returning to the building sector
The construction of new homes in the US rose 3.6% between May and June to the highest level in seven months, official figures have shown.
This is the second month in a row that housing starts have risen following a post-war low in April.
Compared with the same month a year ago, however, June starts were down 46%, the Commerce Department said.
The number of single family homes being built jumped 14.4% in June, the biggest jump in over four years.
'Genuine surprise'
The number of new homes built totalled 582,000, many more than analysts had expected.
Figures for May were also revised upwards, from 532,000 to 562,000.
It is too soon to call a bottom to the housing market in the US
The Centre for Economics and Business Research
"These figures look like a genuine upward surprise, and support our view that housing construction activity is bottoming out," said Dean Maki at Barclays Capital.
For the April to June months, Mr Maki added that single family starts saw the biggest quarterly increase since the early 1990s.
The number of permits to break ground - considered an indicator of confidence in the building sector - climbed to its highest level since December last year.
Completions down
Some analysts, however, urged caution in the wake of the stronger-than-expected data.
"It is too soon to call a bottom to the housing market in the US," said the Centre for Economics and Business Research. "
http://news.bbc.co.uk/2/hi/business/8156302.stm
New US home starts surge in June
"There are signs confidence may be returning to the building sector
The construction of new homes in the US rose 3.6% between May and June to the highest level in seven months, official figures have shown.
This is the second month in a row that housing starts have risen following a post-war low in April.
Compared with the same month a year ago, however, June starts were down 46%, the Commerce Department said.
The number of single family homes being built jumped 14.4% in June, the biggest jump in over four years.
'Genuine surprise'
The number of new homes built totalled 582,000, many more than analysts had expected.
Figures for May were also revised upwards, from 532,000 to 562,000.
It is too soon to call a bottom to the housing market in the US
The Centre for Economics and Business Research
"These figures look like a genuine upward surprise, and support our view that housing construction activity is bottoming out," said Dean Maki at Barclays Capital.
For the April to June months, Mr Maki added that single family starts saw the biggest quarterly increase since the early 1990s.
The number of permits to break ground - considered an indicator of confidence in the building sector - climbed to its highest level since December last year.
Completions down
Some analysts, however, urged caution in the wake of the stronger-than-expected data.
"It is too soon to call a bottom to the housing market in the US," said the Centre for Economics and Business Research. "
http://news.bbc.co.uk/2/hi/business/8156302.stm
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