No Money-Back Guarantee for GM Stockholders

By Brad Laidman, WeSeed

I’m going to guess that General Motors is a tempting stock for the newbie.

For starters, there’s the memory of GM cars as the well-crafted,  muscular, elegant cars of yesteryear — the Don Draper of cars, like the 1958 Cadillac seen above. It’s a wonderful image, no?

Then there’s the fact that General Motors recently announced they will offer a 60-day money back guarantee to eligible buyers of new Chevrolet, Buick, GMC, and Cadillac vehicles. (Unfortunately, I don’t have $70,000 just lying around. But if I did, the devil on my shoulder might be telling me to tool around in a slammin’ new Escalade for a few weeks before telling the disappointed car salesman: “You know, this just isn’t the right car for me.”)

Anyway, you might see this latest effort and think, “Hey, this might bring people back to GM — maybe I should buy some of this company.” And then you see that GM’s stock is at a mere 77 cents per share, so you could conceivably think, “Hey, what the heck? I can get a whole lotta shares for a mere couple hundred bucks. If the company ever comes back, hellllllo Tuscan villa.”

But before you click “Buy,” let me remind you of a quick fact here: General Motors declared bankruptcy last July. The company is currently negotiating with its creditors to somehow get a new lease on life. And that’s not good.

See, when a company goes bankrupt, all of the debt holders jockey for position in hope of getting a piece of what’s left of the entity’s assets. And here’s a key thing to understand: stockholders are always last in line. If General Motors could pay their creditors, they wouldn’t have declared bankruptcy in the first place.

That means that General Motors’ outstanding stock is essentially worthless because it’s quite likely that they won’t even get to the shareholders.

Don’t believe us? Even the company’s website says so:

“Management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in Chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied. In this case, management strongly believes all such claims will not be fully satisfied, leading to its conclusion that the common stock will have no value.”

Still, hope is a tenacious thing, and people apparently have a lot of it. General Motors, which now trades under the sexy symbol MTLQQ, closed last night at 74 cents and traded close to six million shares on the day. It’s hard to believe that in today’s market things could be this inefficient, but sadly lots of uninformed people keep buying General Motors’ likely-to-be-canceled stock mistakenly thinking they are investing in the future of the post-bankruptcy corporation.

If you want to invest in the future of General Motors, you’ll have to wait for the emerging concern to issue new common stock, and knowing how slow bankruptcy proceeding are, that may take a while.

image by cadmanof50s

GM Goes Kaput, Cisco Steps Up

by Carlos Portocarrero, WeSeed Writer

What could General Motor’s (GM) recent bankruptcy possibly have to do with Cisco (CSCO), one of the biggest tech companies in the country?

Three words: In Da Club.

Confused? Well, thanks to GM’s bankruptcy, Cisco is about to join an elite club—one with some serious perks.

Here’s the down low:

• GM goes bankrupt
• News Corp. (NWS) pulls GM from its Dow Jones Industrial Average index (they own it, after all).
• The Dow, which is an exclusive club, suddenly has an opening
• Cisco is picked to replace GM in the Dow and its stock shoots up 5% on the news

Why would Cisco’s stock go up just because it’s going to be a part of the Dow Jones index club?

First of all, it’s kind of like being named “most popular kid in school”—more people will know about you and more people will care about what you do. It’s kind of a prestige thing.

But the bigger reason is that tons of investment companies and funds invest in indices like the Dow and benchmark their performance off of it. To keep up with the Dow, hundreds of funds need to buy stocks in the companies that are a part of it. They do that by buying the stocks that are in the index.

So now Cisco will be a part of the club, and more shares of Cisco will automatically be bought simply because they are now a slice of pie that is the Dow pizza.

Think of it this way: when your favorite unknown band goes mainstream, they’re still the same band they were before. Only now, they’re going to sell a lot more records because they’re famous.

The difference, of course, is that Cisco is not an unknown company. But admittance to the Dow can affect even large companies like Cisco, as the 5% bump in price shows.

Changes in indices like the Dow don’t happen every day, but when they do it’s good to keep your eyes open to see which stock is about step into the spotlight.

See you in da club, WeSeeders.