Friday, December 01, 2006
Kerkorian Gives Up
Kerkorian Gives Up
This is honestly the headline of the century for GM. Game over.
Kirk Kerkorian is a billionaire who resides in the United States. He is president of his own holding company called Tracinda which purchases companies on his behalf. Kerkorian was very important to the development of early Vegas and has a nickname to suit: the father of the mega resort.
As of 2006, it is estimated that Kerkorian is worth $9 billion in stock and cash due to his amazing investment history. He has built several hotels and resorts in Las Vegas, and also made heavy investments in the MGM entertainment company and recently GM.
Quite simply, American automaking is on its way out because of stubborn unions and even more stubborn CEOs. Workers are demanding too much money from unprofitable companies and the consumer is unwilling to buy a more expensive product.
Asia is leading the way with automobiles because of cheap labor, quality products and inexpensive overall product. Asian cars are much cheaper than US cars on the lots.
The only chance GM had was in a man named Kirk. He was the owner of 9.9% of the company up until just a few days ago when he sold out to further his stake in MGM. Now we find today that he has sold virtually everything he owns in GM.
Having an investor like Kirk Kerkorian often instills a sense of confidence in the company. If one of the worlds richest investors likes a stock then its sure to be good right? Apparently not. Kerkorian didn’t become one of the richest men due to bad investments, it stemmed from his ability to create value and insane returns on his investments. Just last year I believe Kerkorian purchased more stock at the same price he received for the remaining of his shares today.
Kerkorian is more than just billions of dollars. He is an investing king. Like university and the name of the professors, Kerkorian defined General Motors as a sound company. In order to escape this debt hole that exists now I truly believed GM would have to take on further debt to spark interest in the new products GM had on display.
The trouble is that GM has horrible cars to offer. Their new lines will not hit the market for another few years and the current cars are out of style mom-mobiles that have a gallons per mile figure rather than a miles per gallon quantity. The cars are much more profitable to produce but the demand for such cars is dwindling due to high gas prices.
GM has nothing on which to lean, not a break in sight, and I believe fundamentally this stock is headed to sheer worthlessness. I would strongly consider purchasing two year duration put options against the GM company. Without Kerkorian, GM looks even less attractive as a sound investment.
Look at the bright side, GM only lost $3 billion dollars in 9 months. Put options for Jan 08 are $3.10 for a strike price of $25 per share. This means the market has already priced GM at $22 per share in Jan08 which is just a year away. Sell sell sell my friends, join the bandwagon because this strikes the beginning of a definite end of GM.