Wednesday September 1, 2010

More Reasons Not To Invest In General Motors: Steven Spruiell of National Review has written, "Searching for bright spots, the Obama administration has seized upon the resurgent U.S. auto industry, and specifically on the bailed-out GM - which has posted its first profitable quarters since 2004 and looks set to relaunch itself as a public company this fall, just in time for the elections."

The problem is General Motors' accounting methods are so convoluted that it is very difficult to determine whether the company is truly profitable.

Accountants can twist the numbers to meet management's scenario du jour. It reminds me of the old vaudeville tailor joke: "You want a blue suit? Abe, turn on the blue light."

In the Financial Times, Tony Jackson has pointed out that GM is forecasting returns on its pension investments of around 8.5% a year.

Jackson has noted that such a prediction "stands in curious contrast to the conventional prudent assumption, which is that pension assets should give a risk-adjusted return equal to the yield on Treasury bonds. And the US 10-year Treasury yield is now just 2.6%."

Let's not forget that the U.S. stock market has averaged 0% - zip, nada - over the past 11+ years. If I truly believed that my investments would average an 8.5% per year return, I'd probably be out shopping for a Bentley Continental GT ... which wouldn't help General Motors any.

"To put that from another angle, GM's annual payments to its US pensioners are running at $9.3 billion. On US fund assets of $85 billion, that ostensibly requires a return of 10.9%." Good luck with that.

Mr. Jackson draws this conclusion: "Emerging like a butterfly from the chrysalis of bankruptcy, GM is being excitedly touted as worth $60 billion-plus. But closer inspection of its gigantic pension fund suggests that in the long run, the business may be worth nothing at all." A big monetary junkyard ... so to speak.

NRO's Spruiell wrote this about the bailout payback: "Amid misleading claims that GM has paid back all of its bailout money, it is important to keep in mind just how much government support the automakers received: Out of $50.7 billion in loans to GM, only $7 billion, or 13.8%, has been repaid. (If you believed GM's claim that it paid back its loans to the government in full, with interest and ahead of schedule, can you loan me some money?)

Chrysler got $10.7 billion, of which it has repaid $2 billion. And let's not forget about GMAC (now Ally Bank), GM's financing arm, which received $16.2 billion and has yet to repay any of it. GM rid itself of GMAC's problems by spinning it off shortly before declaring bankruptcy, but the money loaned to GMAC should count toward GM's bailout: If it hadn't been necessary to keep financing available to GM customers, GMAC probably would have been allowed to fail."

Mr. Spruiell concluded that "we are a long way from being able to say that the bailout "worked", much less that we wouldn't have been better off letting GM and Chrysler reorganize in bankruptcy without our help."

Jeez, I'm beginning to think that the appalling Tesla Motors may be a better investment than the General.

Ever Wonder What Burqa Designers Do In Their Spare Time? Check out the spy shot of a yet-to-be released camouflaged Volkswagen model undergoing testing in Death Valley, CA.

Man, those Muslims can make anything look unattractive.

Katrina Plus Five: Bill Otis has asked a very good question, "Isn't the real scandal here that, after five years, people down there are still bellowing for federal dollars, rather than being expected to stand on their own feet?

One year of help, fine; maybe two years. But if you haven't taken care of your own business after five years, the problem is not with George Bush or even Barack Obama.

The problem is with you."

Headline Of The Week ... so far, is from Nathan Burchfiel of NewsBusters: 'Overwhelmingly White Media Criticize Conservative Rallies as 'Overwhelmingly White'.'

"Our State Fair Is A Great State Fair ..." While covering the Minnesota state fair, James Lileks sampled the culinary offerings on the midway and observed, "Fair food turns on you faster than a French ally after the war's won."

Mindset: Francis Porretto has written about the difficulty of mental readjustment when returning from vacation. "There was no way I could re-immerse myself in my usual life without first "gearing up." That would be like requiring a community organizer with no other job experience to undertake the responsibilities of president of the United States."

Quote Of The Day is from Thomas Sowell: "One of the most important talents for success in politics is the ability to make utter nonsense sound not only plausible but inspiring. Barack Obama has that talent. We will be lucky if we escape the catastrophes into which other countries have been led by leaders with that same charismatic talent."