Wednesday, December 10, 2008

GM.BAILOUT Contract Clarification 10/12/08 11:30pm

iPredict adds the following clarification to the GM.BAILOUT contract:


Funds, or a portion of funds, GM is ENTITLED to receive from the US Government before 1 January 2010 will be considered ‘approved’ and contribute to the US$5 billion minimum. The date GM draws, or intends to draw, upon those funds is irrelevant. Funds, or a portion of funds, which remain subject to conditions being met (whether those are in GM’s control or not) will not be considered approved until those conditions are met or certain to be met.


The basis for this decision is as follows. In the present contract, the relevant wording is:

[A] bail out will be deemed to have occurred if the US Government approves a transfer of at least US$5 billion to General Motors.

[O]nly transfers planned to be made before 1 January 2010 contribute to the US$5 billion minimum.

The contract specifies approval, not the actual movement of funds, as a condition for contributing to the US$5 billion minimum. This clarification is based on that position.

The purpose is to have all funds that GM is entitled to receive with certainty prior to 1 January 2010 count towards the $5 billion minimum, and to not count funds which depend on some non-trivial conditions being met.

Note also that the contract specifies that it “is unaffected by decisions made by his successor's administration.” Any announcement by a representative of the incoming Obama administration to cancel funds to GM approved during the term of the Bush Administration has no effect on this contract.

In response to the question:

If Congress approves a maximum loan of $7bn for the period through to 31 Mar but GM only draw down the $4bn they need this month by 1 Jan, is the "transfer" under this contract deemed to be $7bn or $4bn?

If GM is entitled to receive US$7 billion before 1 January 2010 and no part of that $7 billion is subject to conditions that may not be met (whether those are in GM’s control or not), then the whole US$7 billion will contribute to this contract’s $5 billion minimum. The date GM draws, or intends to draw, upon those funds is irrelevant.

105 comments:

Crampton said...

Just confirming that I'm reading this correctly: If Congress approves tomorrow a loan package that's subject to a non-trivial condition that only is met in February, then this counts as the loan NOT being approved under Bush as the condition was not met under Bush. Right?

Matt Burgess said...

Just confirming that I'm reading this correctly: If Congress approves tomorrow a loan package that's subject to a non-trivial condition that only is met in February, then this counts as the loan NOT being approved under Bush as the condition was not met under Bush. Right?

Correct.

Note however that if, prior to Bush's departure, it becomes certain those non-trivial conditions will be met in February, or those conditions are relaxed prior to Bush's departure, then funds caught by those conditions will be considered 'approved' and contribute to the US$5 billion minimum.

jojo said...

There are SO MANY fish-hooks in this contract, it is just crazy!

Keaton 'Method' Johnstone said...

What happened to the good 'ol "whos gonna win this?" :)


Personally I blame the Americans, we wouldn't have this whole conundrum if they hadn't messed around with their economy in the first place. I mean "bailout"? I could think of many different ways of using 5 BILLION! :)

My two cents

Matt Burgess said...

Jojo, its not ideal, I agree. I can only encourage you to read the contract's words literally and carefully, as we do in making these clarifications and we will do when it comes to judging the contract.

Anonymous said...

Just some info:
"Democrats hold the chamber 50-49, but because some Democrats are likely to vote against the bailout they may need 12 to 15 Republicans to clear any procedural hurdles and pass the bill."

Looks very doable.

Anonymous said...

An interesting thought, who read page 12 of the bill? http://www.house.gov/apps/list/press/financialsvcs_dem/autobill.pdf
Lets say the bill passes in the house, then in the senate and is lan.
Of the 14bn, the presidential designee initially gets $7bn to distribute... The same way of the $700bn finiance sector bailout only $350bn is initially distributed. Now of that $7bn for the contract to pay $1 then $5bn or more needs to be allocated to GM. Is that likely with 3 companies asking for money?

Is this everybody else's understanding, I've read and re-read and just want to make sure I'm understanding this correctly?

Carl said...

Anonymous - this is how I see it too.

This contract has certainly put a few people out - it should be interesting to see what happens when it closes... this will be even more evident if the forums are up and running by then.

LtGorman said...

It doesnt matter if there is a staggered distribution, as long as the final total for GM is over $5bill and is intended to occur before Jan 2010.

Anonymous said...

Matt

Your clarification to Crampton regarding conditions of the loan does not seem to be consistent with the judging criteria which include "a loan on any terms"
could you comment on this please.

Corbusian said...

Yep, I agree with anon having checked the definition of "terms" which might have been at odds with "conditions" - The definition of "terms" on Websters dictionary
include with regards to Finance "The details, specifications, obligations, requirements, and conditions of an agreement, or contract."

and on Dictionary.com includes

7. terms, a. conditions with regard to payment, price, charge, rates, wages, etc.: reasonable terms.
b. conditions or stipulations limiting what is proposed to be granted or done: the terms of a treaty.

might all be a little pedantic but this contract has become so contradictory and confusing as to beggar belief!

Anonymous said...

yes... bring on clarification 11...

Matt Burgess said...

Anon 11/12 12:07

The contract says "The transfer may take any of the following forms: a loan on any terms" refers to a loan's terms: repayment dates, interest rate, etc. It explains the nature of the transfer is unimportant.

Clarification 10 explains when iPredict will consider a transfer has occurred.

jojo said...

LATEST NEWS IF YOU ARE INTERESTED. What do you make of this?..Still doubtful, isn't it? : "House approves auto industry bailout; vote shifts to Senate
50 minutes ago

WASHINGTON (AFP) — The House of Representatives has approved a 15-billion-dollar government lifeline to the teetering US auto industry, but the legislation now faces stiff Republican opposition in the Senate.

The Auto Industry Financing and Restructuring Act passed 237 to 170 on Wednesday following several hours of intense debate, and hours after Congressional leaders and the White House hammered out a deal to help salvage the Big Three automakers.

It now moves to the Senate, where it faces stiffer Republican opposition in a chamber with a razor-thin Democratic majority.

At the conclusion of floor debate, House Speaker Nancy Pelosi said the legislation would serve as "a jumpstart for an industry and our country's economic health."

The bill "sets us on a new path to viability. It is a test. And we will soon see in a matter of weeks if the executive suites in Detroit are willing to make the choices" laid out in the legislation.

"We want to throw a lifeline for success. We do not intend to afford life support."

In the most far-reaching intervention in US industry in years, the legislation calls for emergency government loans to the car companies within days to be overseen by a "car czar" appointed by outgoing President George W. Bush.

In return, automakers by March 31 would have to cut costs, settle debts and make other changes to show a path to economic viability or face possible bankruptcy.

The government could choose to revoke the loans if the companies fail to make progress, or could refuse further assistance after March 31 if the Big Three have no promising survival plan, officials said.

House Majority Leader Steny Hoyer said it was critical that the government bailout proceed.

"There is a great reluctance to directly assist carmakers," he said during House debate over the bill, stressing that "the impact on the economy would be very severe" if the industry collapsed.

"If we do nothing, we face the real threat that sometime soon there will be no American auto industry," he said.

"That will not be good for our national security. It will not be good for our economic security. It will not be good for the psychology of our country."

But the potential bailout immediately collided with serious Republican doubts that the jumpstart is anything more than a quick fix, and that the gap the companies face can be bridged.

Republican Congressman Tom Feeney nixed the bailout as a "short-term solution" that would merely drain federal coffers and strain taxpayers.

"Micro-managing a business from Washington is the supreme act of hubris. It will never work," he said on the House floor.

Influential House Financial Services Committee Chairman Barney Frank, one of the bill's architects, acknowledged the opposition in the outgoing Senate, where Democrats currently have 49 seats, plus two Independents who usually vote with the Democrats.

To overcome opposition Democrats will need at least 60 votes to pass the auto bill.

"We're about to see the great majority of Republicans deliver both orally and then by their votes a stunning vote of no confidence," Frank said.

"But not in the automobile industry, but the Bush administration," he added, noting that the bill was "brought forward in consultation with President Bush and his chief aides."
http://tinyurl.com/5kxvym

jojo said...

Another point/query: The clarification of 10/12/08 states " Funds, or a portion of funds, which remain subject to conditions being met (whether those are in GM's control or not) will not be considered approved until those conditions are met or certain to be met."...So, if the senate/congress/bush impose conditions such as..'In return, automakers by March 31 would have to cut costs, settle debts and make other changes to show a path to economic viability or face possible bankruptcy. The government could choose to revoke the loans if the companies fail to make progress, or could refuse further assistance after March 31 if the Big Three have no promising survival plan, officials said.'...So, this contract cannot actually be judged by its date of Close Date: 21/01/2009, can it?

jojo said...

MORE LATEST NEWS HERE:
http://tinyurl.com/5uq6cw

Matt Burgess said...

Jojo

The contract specifies a bail out will be deemed to have occurred if the US Government approves a transfer of at least US$5 billion to General Motors, and that a transfer includes a loan on any terms. Further, the contract specifies funds GM is entitled to receive from the US Government before 1 January 2010 will be considered 'approved' and contribute to the US$5 billion minimum.

These conditions can be met before 21 January even if "automakers by March 31 would have to cut costs, settle debts and make other changes to show a path to economic viability or face possible bankruptcy".

Anonymous said...

I'm amazed it is still up around 80%, do that many really believe it is that much of a sure thing still? There aren't that many senators, many of whom have spoken out and named their allies and whether they are for or against so I would assume the media would have a reasonably acurate prediction on its success/failure.
http://tinyurl.com/5pm45z
I was long on the stock, but bailed around 88c. Considering shorting it now :) what are other positions on the stock?

Mike K said...

Jojo said "There are SO MANY fish-hooks in this contract, it is just crazy!"

Ain't that the truth...!

After much discussion (previous clarification), I bailed at $0.89 and shorted. While I'm certain that the Big Three will get their bail-out, it looks unlikely that this contract will be judged as acheived.

JM said...

Not looking likely to me either, but I'm hoping the price goes up so I can short some more at a good rate :)

Anonymous said...

Looks like the republicans have an alternative bailout plan.... http://www.nytimes.com/2008/12/12/business/12auto.html?_r=1&hp

Mike K said...

Hey JM - looks like you're getting your wish...but be quick!

Crampton said...

"Under his plan, which was the subject of intense negotiations with Democrats, the automakers would be required by March 31 to cut their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in debt."

- That's a condition that won't be fulfilled under Bush. Hmm.

Mike K said...

“I understand people’s anger and frustration at the situation our auto companies find themselves in today,” Mr. Obama said at a news conference in Chicago. “I raised concerns about the health of our auto industry a year and a half ago, when I spoke to industry leaders in Detroit. I urged them to act quickly to adopt new technologies and a new business approach that would help them stay competitive in these changing times. And while they’ve failed to move quickly enough toward these goals, at this moment of great challenge for our economy, we cannot simply stand by and watch this industry collapse. Doing so would lead to a devastating ripple effect throughout our economy.”

So, they WILL get a bail-out...only a question of WHEN.

ltgorman said...

that condition only means they have to pay the loan back or file bankruptcy if they do not meet those obligations by march31.

it is not a condition upon receiving a loan. it is a condition that means they will have to pay it back.

Anonymous said...

Democrats, Republicans Reach Tentative Compromise on Auto Plan

By Jeff Green and Nicholas Johnston

Dec. 11 (Bloomberg) -- Democratic and Republican negotiators have a tentative compromise on a $14 billion automaker bailout plan that may be voted on tonight, Majority Leader Harry Reid said.

Full story on

http://www.bloomberg.com/apps/news?pid=20601103&sid=atjeItlGDbOY&refer=news

Anonymous said...

WASHINGTON (AP) — Senate negotiations on auto bailout package collapse over worker wage, benefit cuts.

Anonymous said...

ltgorman: If the 'Czar' was to repeal the loan, wouldn't that mean that they didn't fund a bailout?

Anonymous said...

http://www.reuters.com/article/mergersNews/idUSN0929462720081212

U.S. Senate fails to reach auto compromise deal

Anonymous said...

So much for earlier comments on this Blog that this was a done deal....

Anonymous said...

It's all over! Vote just a technicality.

http://www.economicnews.ca/cepnews/wire/article/185596

ltgorman said...

anonymous, it would mean they receive a loan, but be forced to pay it back faster than normal if they do not meet the march31 conditions.

if they cant pay it back they would be forced into bankruptcy

Anonymous said...

A repeal is the removal or reversal of a law. This is generally done when a law is no longer effective, or it is shown that a law is having far more negative consequences than were originally envisioned.
Repeal makes it not exist in the first place i reckon.

Anonymous said...

This just in:

Ayes: 52
Nays: 35

Cloture was not invoked.

Bailout vote failed.

Anonymous said...

Reid acknowledges that this won't be revisited until the new Senate convenes next year. Asks the President to consider using TARP money.

Senators continue to speak on the floor, but this essentially signifies the the end of the bailout debate for calendar year 2008. And now we wait to see what happens.

Anonymous said...

WASHINGTON (AP) — Senate rejects emergency $14 billion loan bailout for US auto companies

Anonymous said...

Weird. People are still buying even though it's all over. Lol.

Anonymous said...

One thing can be said about this contract-it has provided plenty of action and I suspect there is more to come. Better than watching cricket.

Anonymous said...

What's going on? Why are people buying up large? Am I missing something??!!

Anonymous said...

mix of profit-taking and range playing..suspect some people coming in and think this a bargain without having heard the news that has driven it

Anonymous said...

Perhaps its because as reported on CNN
"Two Republican congressional sources told CNN Bush administration officials warned wavering Republican senators that if they don't support bailout legislation for the Big Three automakers, the White House will likely be forced to use money passed for the Wall Street bailout -- something the White House and Treasury Secretary Henry Paulson had refused to do"

Anonymous said...

i want more stocks like this.

jojo said...

WOW!..What a collapse of price from over 90c to around 20c!...Remember the 'HaHaHa' laugh from the Holy @*!#$*^?

Anonymous said...

But I imagine using the the other money would require another vote which won't happen till the senate reconvene after Obama is in.

Anonymous said...

yes jojo, the thought did cross my mind!

Anonymous said...

i wonder if ltgorman gave HB the $3 for his help?

LtGorman said...

no way!

Anonymous said...

just as well else you'd be wanting it back...

ltgorman said...

Its okay, i made money on the way up and i'm making money on the way down.

Anonymous said...

Interesting.

"But Paulson made clear then that he felt TARP funds were intended to help right the U.S. financial services sector. Soon after the Senate bill collapsed on Thursday night, a Treasury spokeswoman said that position was unchanged."

Looks like NO BAILOUT.

http://www.reuters.com/article/privateEquity/idUSN1242286420081212

Anonymous said...

Reuters - "Auto Bailout Dies"
Definatly not looking to likley for a bailout anytime this year.

Anonymous said...

Yeah looks like it's all over for GM. Sell sell sell! :)

Anonymous said...

...unless the money comes out of the TARP, which is already authorised (but so far only for financial companies)...may not happen given Bush was clearly against this but then again one has to wonder to what extent that position was meant to put pressure on congress...given the way this contract has traded a few more twists and turns would hardly be a surprise...looks to me like worth going long below 30c and short above 50c.

Anonymous said...

Bank bailout funds could be used for Detroit
Sources: White House warning GOP senators Wall Street bailout funds might be used for automakers now that auto loan package has failed.

http://money.cnn.com/2008/12/11/news/companies/whitehouse_warning/index.htm?postversion=2008121122

Dibbo said...

Dow Jones futures are down 286pts at the moment so that should help focus Bush's mind. If this is not resolved very very soon GM will have to file for Chapter 11 as suppliers are already demanding payments - I wonder how many are already withholding goods?

Anonymous said...

I think the chances are pretty slim Bush will backtrack his initial stance and step in. Short anything above $0.10 for me.

Anonymous said...

well someone has just put up 500 at 0.21 for you!

Anonymous said...

...and there is your twist

Anonymous said...

looks like GM could get the $4bn it needs to tide it over until the new congress in Jan...of course 4bn is not $5bn...


>>>>>>>>>
Wall St. bailout targeted for Big 3
Bush, in flip, eyes $700B bailout to rescue GM, Chrysler.
CNNMoney.com senior writer
Last Updated: December 12, 2008: 11:17 AM ET

Auto bailout collapses in Senate

NEW YORK (CNNMoney.com) -- The Bush administration said Friday that it will consider using the money set aside to help banks and Wall Street to rescue the auto industry.

The statement -- a change in the administration's long-held position -- might be the last best chance to keep troubled automakers General Motors (GM, Fortune 500) and Chrysler LLC out of bankruptcy.

The defeat of a $14 billion bailout plan in the Senate late Thursday left the administration little choice but to tap the $700 billion bailout approved by Congress in October, the Troubled Asset Relief Program or TARP, according to White House Press Secretary Dana Perino.

"Given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of troubled automakers," Perino said in a statement. "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."

Talking to reporters after the release of the statement, Perino said that President Bush had met with aides Friday morning to discuss options. She also said any help would be short-term in nature.

The Treasury Department, which controls the TARP fund, also said it was looking at using the remaining money as stopgap help for the automakers.

"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," Treasury said in a statement Friday.

General Motors said that it is encouraged by the administration's statements.

"We are prepared to work closely with the administration on possible solutions that could prevent further damage to our nation's economy and also allow us to embark on an aggressive restructuring plan for long term viability," GM said in a statement.

Chrysler did not have an immediate comment, but at a press conference Friday morning, United Auto Workers union President Ron Gettelfinger, a strong advocate of a bailout, said the union appreciated the administration's statements.

GM has warned that it needs $4 billion by the end of the month or else it will run out of the money it needs to continue to operate. It said it'll need an additional $6 billion in the first two months of 2009. Chrysler said it needs $4 billion early next year.

Ford Motor (F, Fortune 500) has more cash on hand despite ongoing losses there as well. So it is not expected to tap into funds in the near term. But it has said it might need money later in 2009 if auto sales do not improve.

The Bush administration and congressional Democrats agreed earlier this week to use funds originally set aside to help the auto industry start producing more fuel efficient cars to fund $14 billion in loans.

But while the measure passed the House Wednesday night, Republican opposition in the Senate kept it from winning the 60 votes it needed to bring the matter up for a vote.

The Bush administration on Thursday had threatened Senate Republican opponents of the measure that failure of the bill would leave the administration no choice but to release the TARP funds, congressional aides told CNN.

After the vote Thursday night, several Democrats, including Senate Majority Leader Harry Reid, urged Treasury Secretary Henry Paulson to release the funds he controls as early as Friday.

The legislation, which had the support of the Bush administration and congressional Democrats, would have placed a number of conditions on the loan. It would have established a so-called car czar to oversee automakers' efforts trying to win concessions from creditors and unions. It also would have allowed the government to call the loans if the companies failed to make progress.

It was not clear what conditions, if any, would be imposed on any loans made to the automakers from TARP.

One possible scenario: President Bush could loan money through early January, leaving it to the new Congress to try again to approve loans for the industry before the Jan. 20 inauguration of President-elect Obama.

The bailout went down Thursday on a 52-35 procedural vote, falling short of the 60 votes needed to advance it. The new Senate, which will be sworn in Jan. 6, will have at least seven additional Democrats, perhaps as many as nine.

While three Democratic senators voted against bringing the bailout to a vote Thursday night, 10 Republicans voted to advance it, and seven of them will be back in January.

President-elect Obama issued a statement Friday that did not refer directly to the use of TARP funds, but said he is hopeful that the administration and Congress can find a solution to get the auto industry the short-term help it needs.

"The revival of our economy as a whole should not be a partisan issue. So I commend those in Congress as well as the administration who tried valiantly to forge a compromise," Obama said.

While Congress approved a $700 billion TARP in October, only half of that money was immediately available without an additional authorization from Congress. And of that first $350 billion, there was only $15 billion of TARP funds not already allocated to the nation's banks.

Republican critics of a bailout have argued that the automakers should use the bankruptcy process to shed debt and provisions of its labor contracts the companies can no longer afford, the way companies in other troubled industries, such as airlines and steelmaking, have done in the past.

But the automakers argued that bankruptcy is not an option for them. They say consumers will not buy cars from a bankrupt automaker because of concerns about the warranties and the resale value of the cars if the company goes out of business. And they point out that companies that reorganize in bankruptcy get funding to continue operations, funding that the automakers would have trouble getting with the current credit squeeze and weak auto sales.

Anonymous said...

ugh... while you were sleeping

Anonymous said...

The way this contract has traded the next twist will be that the Treasury issues a loan guarantee for a loan made by the Fed, thus sending this contract back down the pan. Wish there were more contracts like this one!

Anonymous said...

theres $15billion left of approved TARP. The rest needs congressional approval to use.

i'm picking they'll get the bare minimum to tide them over until obama.

anon2 said...

I predict that by the end of today we will see the prices here at iPredict trading in the 20c bracket like they did yesterday.

Anonymous said...

Thought the price would be way down by now....whats going on? I'm shorting 650 odd

Anonymous said...

why would you expect that? market seems to stabilised at around 80c which seems about right give or take 10c based on what we know at present..assuming that the TARP money is used as the white house has implied the only element of doubt is the sum...is it $4bn (what they supposedly needed previously) or is it $5bn or more? Easy to see why it could be just the $4bn but seem no indication that they are thinking in terms of bare minimum (and latest shenanigans are probably going to worsen their cash burn).

Matt Burgess said...

Great comments. We need a forum. I'll see what my guys can do to get this underway asap.

Luke H said...

Hi Matt, the Gm.BAILOUT graph on the stock page isn't working for me - its blank. The date/time draggable arrows both read 1 Jan 1970.

jojo said...

There is no reason for Bush to dish out more than the $4 billion that GM has asked for now to tidy over themselves. GM wouldn't want to carry a heavy debt either which would be counter productive. Any further loan/bailout is more likly to happen in March under Obama if the extravagant auto industry toe the line demanded of them by then. So, as far as iPredict is concerened my take is that shorting is the way to go for this contract in my opinion.

Anonymous said...

Feds, Ontario to give $2.8B in aid to automakers

Package will be 20 per cent of what the U.S. gives: Global News

http://www.thestarphoenix.com/Feds+Ontario+give+automakers/1069446/story.html

Matt Burgess said...

Luke - send me an email with browser, OS, connection, and any thing else you can think of.

You can click the link below the chart for another version fyi.

Anyone else having trouble with the chart?

Mike K said...

Huh! This is trading 6.0 - 6.9 at Intrade.com

Mike K said...

Oh...but of course. Different terms....

Dibbo said...

Wall St Journal - latest

WASHINGTON -- Throwing a lifeline to Detroit's ailing auto makers, the White House reversed course Friday and said it would consider using the $700 billion financial-rescue plan to avert a bankruptcy of the Big Three that could deepen the U.S. recession.

The announcement came hours after negotiations collapsed in Congress over a compromise bailout plan fiercely opposed by Senate Republicans. That package would have set up $14 billion in loans to the companies and a government-run restructuring process.
The loans to be offered could be more limited than the $14 billion that Congress was contemplating -- perhaps closer to $8 billion, one person familiar with the situation said. General Motors Corp. would be a recipient, this person said. GM is hoping President George W. Bush will come through with about $10 billion to keep the company going. It warned Congress it needed at least $4 billion by the end of the month.

full story: http://online.wsj.com/article/SB122909133751001705.html

Anonymous said...

i'm too scared to go the sleep tonight. lest i wake up to car bailout madness again

Anonymous said...

DITTO!!!! I lost $800!!! Atleast its not $15 billion i suppose!!!

Anonymous said...

OCR Contracts

Given that this blog has become a de facto forum in the meantime, is anyone else find the pricing of the 29 Jan OCR contracts strange? What surprises me is that the market is pricing such a high chance of a 100bps cut (unlike for this month's meeting, the ipredict is well ahead of what financial markets are pricing - which is about 70bps - rather than being well behind, as was the case until about a week before the decision) and despite doing so is giving so little risk of a move bigger than 100bps - about 8% compared with a 30% chance that the move turns out to be 25 or 50bps. The latter only makes sense to me if you think there is a chance of an intermeeting rate cut in early January - one that could follow a move by the RBA - in which case we get 50bps or 75bps in early January and same again late January. But that is not what financial markets are pricing. Interested in people's thoughts on current pricing.

Anonymous said...

What you do have to remember is that most people have no idea what financial markets are pricing...they only find out as the meeting date nears and the market expectations get reported in the papers. At that point the Ipredict market converges on what financial markets are pricing. This is what happened with the 4 December meeting and I expect the same will happen again with these contracts.

Anonymous said...

So a bit of a sell off this morning. Are people going long or short on this stock? I personally took at 50% profit on the way up and now am very very short!

Lt.Gorman said...

GM needs $4billion by the 31st of December, presumably part of this will go straight to suppliers.

It needs another $4billion to make through January. (Some articles say $4.4billion in Dec and Jan)

The question is, how much does the white house need to give in order for GM to last until the Obama administration.

The new democratic majority enters congress on 21st of January. Presumably GM will need to last until then and plus some.

Which would mean, based on previous estimates, they would need at least $8billion. Chrysler needs $4billion to last until March 31st.

Assuming the white house gives the bare minimum, they may only loan Chrysler 2 or 3 billion to last until Jan/Feb

Which means a total TARP package of $10 to $11 billion would be used. (which fits with some reports coming out)

Of course they may not use TARP, there have been calls to try again in congress and suggestion that perhaps a bank who is the recipient of TARP funds would make a government backed loan to GM.

I'm not sure how that last scenario fits into the contract.

Then there is the talk of using TALF which is probably far fetched? I havent read into that much.

So my current pick is GM will receive $7-9 billion. Buying at about 65cents.

jojo said...

It is an extremely dicy unpredictable situation that can go either way. A very precarious stock the outcome of which no one knows. Not even Bush. The Bush Bailout could be for the minimum 4 billion for GM. For all you know a rich prick may just buy out GM for a song now and restructure the company in the Toyota model. I am shorting for various reasons.

Graeme said...

OCR contracts

After the 1.5% cut the Reserve Bank said it assessed "some further, but significantly smaller, reductions in interest rates may be warranted beyond the current policy decision".

My pick is for gradual .5% drops until it reaches 3.5% by mid 2009.

Anonymous said...

i'm predicting the international economic situation to remain stagnant or even deteriorate further yet, forcing a 100bps cut.

potential inflationary pressures may come into play esp with saudi arabia cutting oil produciton and food prices remaining sticky. this may temper a cut

Anonymous said...

THIS THREAD IS ABOUT THE 'bAILOUT' CONTRACT. WHY ARE YOU BRINGING IN OCR HERE?

Mike K said...

(So many, TOO many, Anonymous posters!)

The OCR discussion has no other oulet until either Matt blogs on it or the forums are established. Fair enough to discuss wherever available.

I'm for an 0.5% cut. Deterioration over the next 6 weeks will be steady, not calamitous, barring an external shock (terror attack on US soil, or the like).
Bollard is not compelled to be worried about inflation at all: oil production is already falling to match lower demand, which seems to be persistent, regardless of the price drop. I noticed yesterday that the supermarket shop seemed to be palpably lower than recently...will analyse against last & next week's...

Lt.Gorman said...

Lol. Relax

Lt.Gorman said...

"Food prices rose 0.8% in November from October, with New Zealanders paying more for groceries, restaurant meals, meat and non-alcoholic drinks, figures from Statistics New Zealand show."

http://www.stats.govt.nz/products-and-services/media-releases/food-price-index/food-price-index-nov08-mr.htm

Mike K said...

*LOL* indeed!
We eat a lot of fresh vege, little meat, don't eat out and buy NIL non-alcoholic drinks! (must be the way cheaper Aussie reds that reduced the spend!).

jojo said...

MATHS QUESTION: If I shorted 100 shares at $0.50, 50 shares @$.60, and 34 shares @ $0.72, what is the average cost per share and how do you calculate it? Thanks in advance for your help on this.

Luke H said...

Isn't it just the same maths as if you'd bought them at that price?

100 shares at $0.50 = $50.00
50 shares @$.60 = $30.00
34 shares @ $0.72 = $24.48

Total 184 shares, total cost $104.48
Average cost $0.5678 per share

So your holdings work out to the equivalent of shorting 184 shares at 0.56.

Personally I don't have the stomach for this stuff. When this stock dropped I shorted it at 31 cents and sold when it dropped to 29 cents. If i had held it I would have been screwed! :-) I prefer lower risk transactions.

Babytom said...

Low risk @ $104.00... Hardly seems worth the effort to tell you the truth!

jojo said...

Thanks Luke, but I thought the way to calculate the average for the 'shorting stocks' was different from the way it is normally done for the 'long' stock. Can someone clarify this further please.

Anonymous said...

Luke H : The share price is dropping and will probably hit the 20c/30c range soon because I heard a commentator state that Bush will authorise at most 7 or 8 Billion for all 3 Auto companies of which GM will get at most 4 billion from the 'bank bailout' money. Would be interesting to see how this contract pans out. Further bailouts if any will rest with Obama.

Dibbo said...

Ford don't need money this year so we are only talking GM and Chrysler. GM are more in need than Chrysler so would likely get the biggest share of whatever the pot happens to be....if there is to be a pot.

Anonymous said...

Bush will be more unpopular if he uses the 'bank' rescue fund against his own previous statements and against the wishes of the majority of the Republicans. So, if he does divert money from that fund, he will be conservative I think.

Holybastard said...

Looks like the Bush administration will help GM only after he comes back from the surprise tour to Iraq.
See http://www.reuters.com/article/americasDealsNews/idUSTRE4BD14U20081214

It also looks like the Bush Administration could help GM from the remaining part of TARP ($USD15 Billion) without having to make any legislation change to TARP as the head of the Government Accountability Office testified last week, that the wording of the legislation was flexible enough to authorize loans to the auto industry.
See http://www.marketwatch.com/news/story/white-house-breathes-new-life/story.aspx?guid=%7B081CBE42-3D1B-4884-B83F-2790DF2BB542%7D&dist=msr_12

The collapse of GM and/or Crysler would prolong the longest recession since the early 1980s. Bush might not help GM for this reason because he wants to stab Obama in the forehead? Hahaha.
See http://business.smh.com.au/business/car-bankruptcies-would-prolong-us-recession-20081214-6y8w.html

Holybastard said...

To Jojo:
You should be able to calculate your answer based on this information from the FAQ. You are welcome. Hahaha.
Why does it cost me money when I short sell - shouldn't I make money immediately and only pay later?
Good question. Our system requires that a short seller cover the worst case scenario up front, rather than cover later. On a binary stock (that is, a stock that pays either $0 or $1), the worst case scenario for a short seller is that the stock pays $1 (short sellers lose money if the price is higher than when they go short).

So a short seller pays that $1 when they do the short. When the stock closes, the short seller is paid the difference between $1 (what they paid already) and the closing price of the stock.

For example, consider a stock that is trading for 60 cents. A trader decides to short sell 100 stocks. The trader sells 100 stock ,and two things immediately happen.

the trader borrows 100 from the clearing house and pays $1 per stock; and
the trader sells the and receives 60 cents for them.
In net, the trader has paid 40 cents per stock ($1 - $0.60).

Now the stock closes. Let's say the event did not happen and its closing price is $0. The short seller makes money because the price for the stock went down from the price when he borrowed them. The clearing house pays the trader the difference between the closing price and the $1 payment he made when he borrowed the . That difference is $1 minus the closing price ($0) = $1.

So overall the trader in this case makes 60 cents per stock - which is the difference in market price between when he shorted ($0.60) and when the market closed ($0).

Holybastard said...

Matt Burgess:
I would like to suggest a feature to the website. Can you display the total number of registered traders, please!? Thanks.

Holybastard said...

Since everyone posts everything on this blog, I would like to ask Matt Burgess a question regarding the Electoral Finance Act 2007 (E.F.A 2007)stock.

The National Party included the repeal of the E.F.A 2007 in its "100-days legislation package". However, the stock closes on the "1st of May". So if the Act were to be repealed (as passed by the Parliament, not when the repeal comes in effect, as specified in the contract) before the closing day specified for the stock, will you close the stock before the closing day specified for the stock? Thanks.

Note: The Bill to repeal the Act is scheduled in February, when the House resume.
See http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10548085

Anonymous said...

This contract states 'bail out will be deemed to have occurred if the US Government approves a transfer of at least US$5 billion to General Motors.'~~ 4 billion is what GM wants. Why would Bush give them more than what they want now especially as financing private companies is against his philosophy? He will more likely ask them to go bankrupt and restructure first. GM has a labour cost of $67 per hour while toyota has only about $47. 'Note also that the contract specifies that it “is unaffected by decisions made by his successor's administration'~~These two crucial points point more towards a dumping of stock as is reflected in the current falling prices on this trade. What do you all think?

Anonymous said...

HolyBastard, you can get the number of traders if you click on the top 10 traders list, currently at 2344 traders

Lt.Gorman said...

Labour costs are only 10% of GM's expenses. It's never truthfully been about this. Its a republican hobby horse.

Most of the difference between Toyota and GM labour costs comes from GM's large pool of retirees - due simply to the fact that it has been operating for a longer period of time in America.

By all accounts $4billion will only get GM through December, it needs to last longer than this. It needs an additional $4billion to last through all of January.

I really dont think $4billion on its own will be enough, unless some creative accounting has taken place.

The main stumbling block for me is the possibility that the government will give $5billion collateral out of TARP to the federal reserve so that the fed will be comfortable lending $10-15 billion to GM

Mike K said...

Lt Gorman (and Matt):
As I understand it, an advance, loan or cash injection of some other kind will NOT count UNLESS it's from the Federal Government (whichever branch - legislative or executive). I trust this EXCLUDES the Federal Reserve?

Lt.Gorman said...

Yeah I've been assuming a loan from the Federal Reserve wouldn't count.

Economist said...

Holybastard: Other stocks have been closed ahead of time if the result has been adequately determined - the Benson-Pope stock closed a day or two before the candidates were announced because he came out and said he wasn't standing. So I'm pretty sure that if the EFA was repealed in February then the stock would close pretty promptly. There's no point leaving it trading at 0.999 and annoyingly tying up people's liquidity.

Anonymous said...

LATEST NEWS : US Auto Bailout Remains Elusive. By Michael Bowman
Washington. 14 December 2008
With two of America's major automobile companies reportedly weeks away from financial collapse, there continues to be little agreement in Washington on how to craft a government rescue package that would stave off bankruptcy. The White House is weighing options days after the Senate defeated a plan to provide emergency aid to carmakers.

In concept, everyone agrees on the basic idea behind federal assistance to the troubled U.S. auto industry. The carmakers, their unions, the Bush administration and leaders of both parties in Congress have endorsed the idea of a government bridge loan in return for significant steps to restructure automobile companies and make them more competitive. It is in the details that potential deals have fallen apart. Just what steps will be taken to put carmakers on a path to financial viability, the sacrifices that will be required of autoworkers and how federal funding will be provided have all proved highly divisive.


This has been about trying to find a solution that works and really causes these companies to be in a position to go forward in a healthy fashion. But, without all of these shared sacrifices, that will not happen," said Corker.
For weeks, the White House expressed reluctance to dip into the rescue package, which Congress approved in October to bail out U.S. financial institutions. But the White House said it was reconsidering the idea after last week's Senate defeat of the automobile aid program. White House officials say they are reviewing financial data on the automakers, while considering possible courses of action. Details here:http://tinyurl.com/6qus4h