May 5, 2005

GM Follow Up - Unleash the Lemming

From Barry Ritholtz:

But give credit to the crafty former greenmailer (recall his M.O. in the 80's). If he wanted to, the 87 year old Kerkorian could have very easily upped his stake, quietly accumulating another 28 million shares or so -- and probably done so on the down low at $27-29.

Instead, he worked the crowd like few others we've seen recently. The guy is old school, and I imagine that in the present highly regulated environment, very few people would have the chutzpah to do what Kerkorian did. Hey, I question the motives of anyone who shouts "I BID $31 FOR GM" -- at $26 -- when they are already long 22 million shares. That's rather suspect. But you gotta admire the sheer audacity (in another era, it was called "balls") of the manuever.

That said, its a function of how oversold the market was -- and how many lemmings reside on Wall Street -- that equities reacted the way it did.

Yesterday I threw out the General Motors (GM) news as a reason to buy the markets though I agree with Barry's thoughts 100%. Kerkorian's deal emphasizes style and short-term impact while raising his entry price. At $31 Kerkorian not only bid through the offer, but bid through the closest resistance and into a big gap. The trade screams "technically driven" while the company's fundemental problems with unions and pensioners remain unsolved. Barry also notes the oversold state of the tape as the reason for lemming-like behavior in the market at large. As I was/am a lemming I thought I would elaborate.

A week ago banks faced difficulty selling a $3 bln bridge loan for the Sungard transaction. I wrote, "It will only take one good deal to create a bounce in this environment..." and that is the logic for jumping in. The markets were being starved of capital and Kerkorian stepped up to provide some. His money alone didn't do it but it could shift psychology enough to lower risk premiums and induce investment again. A very short-term effect but given the length of time we spent bottoming in the last couple of weeks I would say it lasts a month.

Anyway, to be or not to be a lemming is all about how quickly you can turn your portfolio around. For me it is a few minutes to reverse my index exposure. Kerkorian has caused a trading bounce and I am trading. Knock on wood I guess...

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