Wednesday, May 04, 2005

The Sharks Go After GM


The stock market shot up today. The cause was due mostly to one man: Kirk Kerkorian.

He has a long and colorful history of taking over companies like MGM and then dismantling them and altering them into something else, in MGM's case, turning them into a casino after holding a fire sale of their assets. He also serves as sponsor of slush funds for the GOP giving them money to run hysterical ads attacking tax paying or medical reforms.

He recently was in a big fight over who controls Chrysler

A New LBO King

Like a corporate raider from the '80s, investor Kirk Kerkorian swooped down on Chrysler and made an unsolicited offer of $23 billion for the automaker in what could become the second biggest leveraged buyout since the sale of RJR Nabisco. Joining him in the bid was former Chrysler chairman Lee Iacocca, who reluctantly retired two years ago. Kerkorian and Iacocca both claim their offer is nothing more than an attempt to restore value to the stock price of a company that has engineered one of the most remarkable comebacks in recent years.

Dollar Therapy

With the plunging U.S. dollar threatening to throw Japan's economy into another recession, the Japanese government introduced an emergency plan to halt the fall of the U.S. currency against the yen. Japan's central bank cut the official discount rate (the rate at which it lends money to other banks) by three-quarters of a percentage point to a record low of 1%. The measures are aimed at encouraging consumer spending and reducing Japan's huge trade surplus, which is believed to be the leading cause for the dollar's fall.

He didn't succeed in taking over the company but he did drive up the value of the stock there for a while and made money selling off his share. He knows that all he has to do is buy in a very loud way, some stock and it shoots up as everyone hopes to feast on the carcass of some company or another. This is huge fun. If you don't work for some corporation that is going through this like IBM is going through with today's headlines that they are laying off 13,000 employees. A big number any way you look at it.

As a historical note I included the "plunging dollar" news. Japan, as usual, was having a LOPSIDED currency valuation which they tended by purchasing American debts to bouy up the dollar and artificially keep the yen below the true value so they could underbid American companies especially car companies which made them ripe for hostile take overs which involved cutting benefits and wages to the unions building American cars....note how not only has this relationship not changed at all, no one notices it anymore!

Because China is now doing it, too!

So today, the man who disassembles companies to "find value" is at it again. He claims he doesn't want anyone's head on a platter but IBM's news is not reassuring. Once upon a time, a job at IBM was a job for life. Company loyalty was returned in the form of security. This is gone with the wind. Employees are now expendable function units to be terminated at a whim. Note that the two graphs below are nearly identical:
click here to see IBM stock graph
click here to see GMstock graph

The workers at GM are not being saved by the stock rising. They are being prepared to be eliminated. Pretty much with a wave of the wand, the rich men in their suites in skyscrapers will toast each other as worker's lives turn to burnt toast. All those pretty homes they lavished their time and money on, poof. No value. Who is going to buy homes that are an easy commute to no jobs? There goes the retirement dreams. Older workers won't be selling homes to younger workers and then going off to a happy time in Florida.

The outlook for all the American auto companies is dark indeed. They put all their eggs in the gas guzzling basket and they are all now basket cases. They have interesting sidelines which are still profitable, all of which involve lending money recycled from China and Japan who pump it back into the system via the back door as that archive article from ten years ago so clearly explain.

There is going to be a world of hurt for some Americans. Europeans, too. They are also being laid off rapidly.

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