GM deal is a winner
Government privatizations have a track record of success, and this one is so good you can buy it in the aftermarket.
Psst, you want a good idea? Buy from the federal government whenever it has a privatization up its sleeve.
We're all abuzz about General Motors (GM), of course, as we should be when faced with one of the world's biggest underwritings. But let's consider the other merchandise the government's thrown our way. First, even though we've seen a pullback in Citigroup (C), the government has given you an almost 30% return on the big underwriting it did to kick off the privatization of that bank.
But let's look further back in history. In 1979 the government provided a loan guarantee to Chrysler in return for stock warrants to buy 11.4 million shares of the automaker at $13 a share. With that guarantee, Chrysler, which sold at $7.50 at that time, was able to get a private loan.
Chrysler paid back the loan in 1982, and the government put the warrants up for sale. Chrysler bought the warrants back. And how could it not? The company had appreciated 280% since the loan guarantee. You had to buy Chrysler to cash in, but cash in you did.
The feds created Conrail out of a bunch of bankrupt railroads in the 1970s. In March of 1987 the government IPO'd the rail line, with 52 million shares at $28. One year later you had made 8.5% despite the crash of '87. Five years: 192%. Ten years: How about 707%. Post continues after video:
So buy. Hope you got some. It will be terrific. It will be terrific to $40.
Of course the GM IPO is about as tight as a drum with institutions and individuals scrambling for as much stock as possible. This is one of those "return to the casino" deals that makes so much sense that you can actually buy it in the aftermarket. I am using a $40 top on where I think you have to stop buying.
I almost never say buy in the aftermarket, but it is a rare large deal where the seller wants you to win.
So if you didn't get in, I would put a limit order to buy the stock at $38. Why not $40? Because I don't expect the stock to explode higher, and I don't want you to miss the opening, and I would hate to tell you to buy it where I would be ringing the register.
Couple of dollars' margin. Hopefully you get it at $35-$36. That would be just fine.
At the time of publication, Cramer had no positions in the stocks mentioned.
GM has a proven history of failure. They manufacture sub-standard products and would rather pay court settlements instead of issuing recalls.
Everyone, including GM management, has stated that GM's future relies on the Volt, a $41,000 hybrid. $41,000!!!!! Why would anyone buy a unproven Volt for $41,000, when they could get a 16-year proven $24,000 Toyota Prius instead? The $17,000 in savings would more than enough to pay for mileage difference the Volt MAY have. PLUS you don't have to worry about being left strained along the side of the road ..... like you would with the Volt.
Anyone who buys GM stock is a fool. And everyone has heard the old phrase, "A fool and his money are soon parted!"
Wow, talk about fishing in the desert. Cramer has to go back to 1979 to find enough examples to back this sorry recommendation. I can hardly believe the pandering media hype on this GM IPO. Just remember folks, the U.S. Government will still own more shares than they sold after this IPO. Last week, they would have been perfectly happy to sell all those shares at $26 to get out of GM entirely. What makes you think they won’t still be happy to sell their remaining shares at $26 in the future? And where will that leave you if you buy it at $38? Keep in mind too, this is likely to be a highly volatile stock for at least a few months after this IPO, like AIG was after it collapsed and then reverse split. Are you really prepared to see your $38 investment fluctuate by $5-10 in any single day for a chance to make $3-4 dollars
How about this deal; I’ll consider buying a few shares of GM stock (just to be patriotic) when Goldman Sachs publicly announces it will never short the stock for itself or any of its clients.
reddog285; I saw where GE is closing it's last light bulb factory and laying off the union workers making $42.35/hr running machines that MAKE the light bulbs. Guess I'll have to buy my Chinese light bulbs at Walmart; wonder when they'll start selling cars made by GM:China? There's a lot of difference between the US Union setting the min wage at $7.25 and paying someone $42/hr to RUN a machine making light bulbs.
So you guys, i bet that if this IPO have being a total disaster they will be ranting about Obama, but because the IPO was successfully and the Gov own only 31% of GM now and it is not Government Motors anymore, now comes the whining about the IPO, blah blah and more blah.
We live in America buy it, if you like it, do not if you don't, when you got old GM stock you knew that owning stock was risky business no? as it is now, so you want to own stock and be fully protected? put the money in CD's and forget the Market is not for you.
Cramer is an outright FRAUD and SNAKE OIL SALESMAN. Two days ago he was spouting about don't even bother buying the new GM, you are better off buying Ford.
Now he opines about how great this company will be.
Cramer talks out of both sides of his mouth depending on who the audience is so his credibility is ZERO.
GM still have an underfunded pension even after dumping $6 billion into it after the stock sale. They WILL STILL have 10 times the number of retirees to workers paying into the system which means their DB plan is always paying out MORE than it's taking in by a HUGE multiple and if the stock/bond markets have a bad couple of years this exacerbates this problem even more.
The US government will STILL OWN 24% of this company AFTER the IPO, they still have billions in debt to pay off to the government.
The one "good" thing is that they have about $40 billion in tax losses they can carry forward for years so the IRS isn't going to be getting much tax revenue from them anytime soon.
So the US taxpayer gives them $50 billion for a bailout in order to save the company and tens of thousands of jobs and tax receipts for towns/cities. Then the IRS aka the tax payer gets ZERO tax revenue until this tax loss carry forward is exhausted which will take a decade at least depending how profitable the new GM is. This little bailout is costing the taxpayers more like $100 billion when you add it ALL up.
just the fact that cramer is recommending this should be more than enough to tell you why this is a bad deal. Can't wait to start shorting this.
Think any of the old GM bondholders will buy? Oh wait that's right, GM and the government stole their savings and gave it to the unions.
Wow, listen to all the so called 'capitalists' and 'free marketers' whine. I've heard these people before, usually when extolling the virtues of privatizing social security. But what about the risk? they're asked. The answer is usually to sack up, nothing is garunteed.
Now, however, comes the whine that the original investors should have their loosing bets covered. So, if the other guy looses, tough, but, if I loose, it's where's my gubmit check. Typical reactionary thinking.
Face it, most of the whining is comming from people who are mad that this was Obama's idea and it appears to be working which drives them crazy.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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