Jun 8, 2005

Kerkorian Done Buying

It is hard not to view this news as related to the Ford bond issue yesterday. Also, I am also surprised Kerkorian's tender didn't reach its intended size. When a bid comes in multiple points above the market I lean towards filling it.

I guess Kirk will be thanking Merrill for correctly recognizing the strong inherent demand while the stock was in free fall. That advice is all the more impressive as it was able to anticipate and look past the looming credit downgrade to the current nirvana.

While I am ranting I may as well discuss some other recurring thoughts that I have on GM and the auto sector. That Chicago number last week was nasty to say the least. Just one number but it is not too hard to imagine lots of bankruptcy headlines slowing purchase and hiring decisions at all levels. Those headlines could also have a very negative effect on the consumption of employees in the sector. Maybe that is not what is happening but I think it is too early to say for sure.

On another note it strikes me as a very large contrarian flag, that GM's salvation is being seen in ditching its manufacturing business so that it can focus on financing. If the long-term problem facing the US is an excess of borrowing and a lack of manufacture for export, there certainly appears to be some short-term forces going the other way.

These two thoughts contradict a bit but it comes down to timing. At this point demand for US exports is not sufficient to shift production patterns but at some point in the future it should be. In the mean time the manufacturers are dependent on US consumption which could be heading for a rough patch.

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