By Chip Hanlon | November 14, 2008 | 1:54 PM | 6 Comments
Thinking of buying GM (NYSE: GM) based on a looming bailout from Washington? Well, you're right in one sense--a bailout is a virtual certainty.
Just came from an interesting meeting with an elected official who shall remain nameless... the gist was: Democrats are absolutely going to vote for an auto industry bailout as payoff to the UAW-- no big surprise.
Further, this person said, with no intention of giving investment advice, just talking politics: "don't kid yourself thinking they give a darn about shareholders...they'll probably get wiped out in a bailout." This person went on to say aid from D.C. would likely also be about mandating UAW board seats and dictating what sort of cars the Big 3 would build in the future.
Think of it another way: if a day before the Fannie and Freddie "bailouts" a little birdie had told you such a takeover was coming, most speculators would have loaded the boat with those stocks. And they would have lost their shirts in the process.
Maybe GM won't play out that way, but you currently enjoy something which is rare in markets: clarity. You know with a very high degree of certainty that the current business of GM is not viable. What's the point of taking a wild guess on a bailout and trading against that knowledge by buying GM's shares? I don't see it.
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