GM Stock Lowest in 55 years - Target Price: Zero, AIG eats more government cash

GM's Securities

Fitch Ratings has warned of GM's "rapidly diminishing liquidity position" and DB has set a target price of zero for the stock. (aside: check out DB's art website here, DB owns the world's biggest corporate collection of art).

STOCK
GM has dropped from $33 to $3 this year, following DB's downgrade. The short interest on GM stock is currently 93.5 million - short interest is the number of shares of a stock that have been sold short but not yet covered (by depositing funds) or closed out.

OPTIONS
GM's most active contracts were November $3 puts. Their value more than doubled to 70 cents.

DEBT
GM's debt is trading at "stressed" prices. "Stressed" is basically one level above "distressed".

Will federal bank-bailout funds be opened up to automakers?

The Treasury announced it will pay $40 billion for another 2% stake in AIG (preferred shares), which has posted a $24.47 billion loss for Q3. The term of the loan has been extended from 2 years to 5 years. AIG was involved in insurance of CDOs.

The ignominious position of GM will force management to reflect on its history. Founded on September 16, 1908 in Flint, Michigan (now hq'ed in Detroit) as a holding company for Buick, controlled by William C. Durant of Boston. He lost control of GM in 1910 to a banker's trust due to excess debt taken on in its acquistions followed by the collapese of new vehicle sales. A few years later he started Chevrolet, and reassumed control of GM by building up secret stakes.

Commodities take a Beating as Investors Worry about Falling Demand - But People Still Need to Eat

The S&P GSCI (an index for commodities which have active, liquid futures markets, e.g. crude oil, wheat, sugar) has tumbled 29% since the start of October. Commodities tend to move in the opposite direction of the dollar which has been stronger as of late. Prices of non-precious metals (such as aluminium) have fallen faster than agricultural products (people still need to eat).

The GSCI index, which was developed by GS in 1991, reflects a diversified, dollar-denominated basket of commodity futures, and sparked an explosion in commodity index trading since its launch, and corresponding volumes on futures markets as well.

Emerging Markets - The Fall of the Forint

As Hungary's central bank raised its main rate of interest by 3.0%, to 11.5% (when the rest of the world were cutting theirs), to support its forint currency and attract investors, concerns spread over the economies of Central and Eastern Europe.

Risk-averse investors are pulling money fast out of emerging markets. Much attention is being placed on each nation's current account deficit (the main component of the current account is the balance of trade; a deficit normally indicates you are importing a lot more than you are exporting). At the sharp end is Latvia, with a CAD of 23.7% of GDP with the safest being Czech Republic at 1.8%.

Commenting on the move, Nigel Rendell, chief emerging market strategist at RBC Capital Markets in London, remarked - "Investors aren't worried about getting a better rate of interest if the currency is going down 2.0% to 3.0% a day". ECB is lending Hungary up to 5 billion euros.

A new book called "The Partnership" tells the story of Marcus and Samuel's Financial Fun Factory - Goldman Sachs

Charles Ellis asks why the (former) investment bank Goldman Sachs has achieved "acknowledged excellence". Marcus Goldman founded M Goldman in 1869, and was joined over 10 years later by junior partner Samuel Sachs. One of Goldman's oldest clients is Sears, Roebuck & Co. (note: Kmart (founded in Detroit) and Sears (founded in Minnesota) were merged in March 2005). Fischer Black, a partner in the company and pioneer of stock options valuation, described the company as better than a university since "the firm's business required continual learning as it adapts to new conditions".

What is the precise role of the IMF in the credit crisis? What's the precise role of the World Bank?

Dominique Strauss-Kahn, head of the IMF, has said the IMF was willing to lend to countries in dire need of capital.

To understand what role the IMF should play in this saga, we must know the history of the IMF. The IMF and World Bank were both established in July 1944 at a conference in Bretton Woods, NH during the closing phases of WW2. The main debate was between the US and British delegation, debate revolving around liberal and conservative visions of what a global economic institution such as the IMF should provide. In a nutshell, should the IMF operate as a fund (the liberal view) or more like a bank (the conservative view)?

Keynes, who led the British delegation, imagined the IMF as a co-operative fund which member states should draw upon during periodic crises, to maintain economic activity and employment. The US view was an institution like a bank to ensure borrowing states could pay their debts, less concerned about preventing recession and unemployment. The tougher, US conservative view prevailed.

Since WW2, IMF has loaned funds to governments facing economic crises. These loans, which have engendered controversy, have been termed structural adjustment loans as their purpose is to help borrowing governments adjust the structure of economic activity.

The World Bank has pledged aid to developing countries over the weekend to help stem the crisis. WB President Robert Zoellick declared the financial crisis a "manmade catastrophe" and added that despite the crisis "aid flows must be maintained".

Rocky Day for the Dow, Historic Falls on the Stock Market. What should be done to stabilise markets?

World equity markets fell around 20% this week.

In the first few minutes of trading the Dow plunged 700 points. After 45 minutes, most of the losses were regained and then it fell more than 400 points again.

By the end of the week, London markets fell 21.1%, Tokyo fell 24.3% and New York 18%. FTSE closed at a 5 1/2 year low of 3932, the week was the second worst in FTSE's history.

In India, credit default swaps on ICICI bank (India's second largest lender) topped 1000 basis points (trading upfront). According to markit, funding rumours led depositors to withdraw cash. What does this mean? It means it costs $1m to protect a $10m investment in the bank's notes.

Tight credit markets (Increases in 3 month LIBOR, ON LIBOR). How to stop the rising cost of short term borrowing?

Tight credit markets and pessimism led to a brutal day in the markets. Dow tumbled 7%. Estimates for car sales were awful, crushing auto-makers. GM plunged 31%. 3 month LIBOR was up 43 basis points to 4.75%. Overnight Libor was up 1.16 percentage points to 5.09%. Recall LIBOR rates doubled the day after the Lehman bankruptcy.