Opening Bell: 06.01.09
GM Declaring Bankruptcy (finally) (Bloomberg)
Shocker alert: "General Motors Corp., the world's largest automaker for 77 years, will file for bankruptcy today, a landmark for an industry that defined American economic might.
The filing, which GM executives said last year wouldn't happen, marks the plunge of a company that used to make more than half the cars bought in the U.S., including the Corvette, the Cadillac and the Pontiac GTO. A General Motors affiliate, Chevrolet-Saturn of Harlem Inc., sought bankruptcy protection today, the first of many filings in the Chapter 11 process."
Robert Reich: General Motors holds a mirror up to America (FT)
I'm not often in agreement with Robert Reich (especially when he's on CNBC), but this piece pretty much hits the nail on the head re: rationale for bailing-out GM (etc). Read the whole thing, but he points out the obvious facts that so many seem to be ignoring (on purpose or otherwise):
"The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise. Yet if this is the goal, surely there are better ways to allocate $60bn than to buy GM? The funds would be better spent helping the Midwest diversify away from cars. Cash could be used to retrain car workers, giving them extended unemployment insurance as they retrain.
But US politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view."
Chrysler Could Exit Chapter 11 Today (WSJ)
Keeping with the auto theme, apparently Chrylser's "reorg" may be done after only a month. Let this be a continuing lesson in the consequences of trading against the Government.
Investors Could Live without AAA (Reuters)
I'm not sure why anyone besides retail brokers and clients really give much of a damn about S&P/Moodys/Fitch ratings given their epic failures and clear conflict of interest, but the point is that there ain't a whole lot of AAA around, and the number of the endangered could still drop further.
"The already-diminished pool of Triple A debt available to investors would be so small without the U.S. government (were it to be downgraded) that funds would almost be forced to accept debt at a slightly lower rating. No other debt market could provide the depth or trading liquidity of U.S. Treasuries.
S&P lists only 102 sovereign and local government issuers as well as eight corporates with Triple A ratings. In addition, there are a number of financial institutions... Therefore, many investors would probably accept the lower rating if the United States were downgraded, instead of sticking to the top grade and scrambling for a relatively small pool of assets, which could drive up prices. Some investors might even redefine the lower rating as effectively top-notch."
Air France Jet Missing Over The Atlantic (WSJ)
"An Air France official said the airline has lost contact with a plane carrying 228 people from Brazil to Paris. Air France spokeswoman Brigitte Barrand said, "Air France regrets to announce that it is without news from Air France flight 447 flying from Rio to Paris." She said Monday the flight was carrying 216 passengers and 12 crew members. Brazil's air force said a search began Monday morning near the Brazilian archipelago of Fernando de Noronha."
Investors skeptical on stock market rebound (FT)
But what about the green shoots?!
"Barclays Capital has revealed that just 17.5 per cent of the 605 investors interviewed for its quarterly FX investor sentiment survey - including central banks, asset managers, hedge funds and international corporate customers - think risky assets have further to rise. This is one aspect of a generally gloomy outlook for the global economy, which undermines optimism that "green shoots" of recovery are starting to emerge.
Six out of every 10 respondents believed that the recent rise in equities is a "bear market rally", indicating that global investors still have a large share of their funds parked on the sidelines in cash."
Geithner Tells China U.S. to Tackle Deficit as Economy Recovers (Bloomberg)
Perhaps this is the cruel joke of a translator with a severe hatred of elfin creatures? Or just empty political rhetoric, whatever:
"We are going to have to bring our fiscal deficit down to a level that is sustainable over the medium term," Geithner said. "This will mean bringing the imbalance between our fiscal resources and our expenditures down to the point -- roughly 3 percent of GDP -- where the overall level of public debt to GDP is definitely on a downward path."
That would be a reduction from a projected 12.9 percent this year.
The U.S. will need to phase out the tax cuts and bank rescue programs set up to help the economy recover from a deep recession, Geithner said. Spending cuts also will be needed, along with health care reform and new budget constraints like pay-as-you-go rules."
--Brought to you by Analyst
