Ask The Airlines, Bankruptcy Isn't So Bad

Finally, somebody is paying attention (not to me, I am sure, but I can dream). The Obama team is considering a pre-pack bankruptcy with government financing support. Not their original idea (or mine for that matter) but who cares, it is probably the best route to saving the car industry. They may ultimately decide that all three cannot survive in this environment, who knows, but this is a step in the right direction, in my opinion. We will see.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aRfqFMhlj5lk&refer=home

By the way, the above Bloomberg article notes that prepacks might take 6-12 months whereas normal Chapter 11 bankruptcies can take 2-5 years. Properly done, this it true, but this could be a messy prepack, given all the creditors, unions, vendors, etc. I have been involved in numerous prepacks and they rarely wrap up in less than a year. I have had some go three to four years. One I am involved in right now, has been going on for several years and the debtor just filed its 12th or 13th amended plan. Rare, I admit, but it can happen. I don't expect a GM prepack will resolve quickly, but the company can continue to operate while it gets resolved - so long as the government continues to finance the operation. This will not be cheap, but it is cheaper than the alternatives.

Credit Anyone?

The three month Libor, interbank credit rate, rose today. Not a big rise, but certainly not the direction we want to see it going. Given the market the past few days, hardly a surprise.

http://www.bloomberg.com/apps/news?pid=20601087&sid=awedRkrRZ4SQ&refer=home

No, You Are Not Dreaming

The stock market is not just a bad dream, it is happening. If the S&P stays where it is or lower, this will be its worst annual decline ever. 483 of the 500 stocks in it have declined this year, so if you were not fortunate enough to pick the lucky 17 that did not decline, you suffered as well. The index is now down 49%. I remeber telling a friend of mine that it is not unheard of for stocks to go down 50% or more in a recession. His jaw dropped like a rock even though he had lived through some of these recessions.

There was, after all, a 49% drop in the S&P when the technology bubble burst, but that took over two years. And if you focus on the Nasdaq instead, you may recall that it was once over 5000, but closed yesterday at 1316, roughly a fourth of what it once was.

Nonetheless, this time around is notable for its depth and speed. More or less a perfect storm has come together that will make it longer and deeper than probably any recession since the Great Depression. Virtually all sectors are suffering at the same time. The last couple of times consumers got us out of the mess by spending, but this time consumers are on the ropes too. They have way too much debt, their piggy banks (otherwise know as homes) are empty, they have job losses mounting and overall are not in a spending mood. You have, as a result, retail suffering at the same time that manufacturing is suffering at the same time that financials are suffering at the same time that real estate is suffering and so forth and so on. Pretty much everyone but WalMart and McDonalds is suffering. This alignment of the stars just does not happen often, but it is happening now and it is happening on a global basis.

But you need to keep in mind that what is happening can be referred to as a correction. The economy was broken. It seemed wonderful but it was on an unsustainable trajectory. Coming back to earth, i.e. reversion to mean, is painful but necessary. Hard to believe, but what is happening now is a good thing.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aC9BtxtnWsiA&refer=home

Did I mention, in the not suffering category you can squarely put Lockheed. Seems military spending is one area not in the dumps these days.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aDFPQX31NCTY&refer=home

Why Bother

Goldman is recanting its $200 a barrel oil prediction and basically saying it is no longer predicting where oil will go. While oil traders are supposedly furious, if they still believed the $200 a barrel prediction now with it under 25% of that call, they are in the wrong business.

http://www.nakedcapitalism.com/2008/11/goldman-recants-its-200-barrel-super.html

This is so typical of analysts. They wait until a stock has already fallen 80% to switch their recommendation to a sell recommendation. At that point, however, unless you think the company is at risk of going under, you might as well hold. And if you think it will recover when the economy recovers, there is that nice cost averaging thing you can do where you might actually take advantage of the decline.

Barry Ritholtz, who is a frequent guest on financial talk shows, and who has been calling things pretty well in this recession, makes the same point here in a good bit more detail (with nice charts).

http://www.ritholtz.com/blog/2008/11/belated-downgrades/

"and another one down, another one down, another one bites the dust"

Gonna get you too. Singapore is now the third Asian economy officially in recession, close on the heels of Hong Kong and Japan. Did I mention that decoupling thingy?

http://www.marketwatch.com/news/story/Singapore-falls-recession-cuts-2009/story.aspx?guid=%7B81BD9818%2D1469%2D4D7B%2DA8A1%2D4C13592A2E47%7D