Even though U.S. pump prices are nearly half the $4 per gallon ($1.06 per liter) levels of a year ago, the legions of American fans of gas-guzzling SUVs and trucks don’t have much to celebrate.
President Barack Obama’s White House has unveiled new fuel-efficiency rules that will push auto companies into making more small cars and General Motors and Chrysler — both heavily associated with large vehicles — have sunk into bankruptcy.
But don’t expect many dents in the Sport Utility Vehicle fan club.
Cities like Houston, where driving is at the heart of the daily routine, are proof of the American love affair with the big car.
“I couldn’t get by without this thing,” said Kathy Fieldman, a mother of three who was washing her black Chevrolet Suburban at the Bubbles Car Wash in Houston.
“Obama can do whatever he wants — I need to get my kids to school,” she said. “I can afford to put gas in it, especially where it is now.”
GM, the country’s No. 1 automaker, filed the biggest bankruptcy in history by a U.S. industrial company on Monday under the direction of the Obama administration. Fellow Detroit auto giant Chrysler had filed for creditor protection in May.
GM’s move came weeks after Obama ordered the struggling auto industry to make more fuel-efficient cars under tough new national standards to cut heat-trapping carbon dioxide emissions and increase gas mileage.
GRADUAL CHANGE
The new fuel rules and Detroit’s economic hardships will transform the face of the U.S. auto fleet over time and nudge Americans toward smaller models, said Joe Wiesenfelder, a senior editor at Cars.com.
But the change will be gradual and driven by financial, not environmental, concerns.
“People who have Hummers and pickup trucks don’t need to dump them and get a (Toyota) Prius,” he said. “When it’s time to buy something new, they are absolutely going to get something more efficient — even if it’s one size smaller.”
For the typical two-car American family, one might be an SUV for local trips and the other a smaller, more fuel-efficient model for long-haul excursions, he said.
For many Americans, the choice between buying an SUV or a fuel-efficient hybrid seems to be about meeting family demands of carpools and soccer games.
“There’s still an SUV market in Texas,” said Michael Wolf, a salesman at Sterling McCall Toyota, beside a bustling highway where 20,000 people commute to Houston from the suburb of Sugar Land every day. “There are all those families with two and three kids down in Sugar Land.”
But if gas prices return to last July’s record U.S. average of $4.11 a gallon — versus about $2.44 a gallon now — SUV drivers might have little choice but to seek lighter cars.
“No one had to tell people who were spending $100 a week to fill their tank that this isn’t sustainable,” Wiesenfelder said. “That is not a lesson that people forget.”
For Dan Bryant, a member of the Houston Hybrid and Hypermilers Club and owner of a 2007 Toyota Prius, using a fuel-efficient car for his 15-mile (24-km) commute from his home in Cypress, Texas, has little to do with ecology.
“I’m not the stereotypical hybrid owner,” he said. “My primary motivation has nothing to do with the environment or polar bears.”
Instead, Bryant said he drives a hybrid to help cut U.S. dependence on crude oil imports.
(Bloomberg) — U.S. stocks are worth buying for the first time in six years, according to an indicator that has signaled bull markets all but once since World War II.
The CHART OF THE DAY shows this barometer, known as the Coppock guide or Coppock curve, for the Standard & Poor’s 500 Index. The S&P 500 is also depicted.
The gauge was named for E.S.C. Coppock, who introduced what he described as a “very-long-term buying guide” in an October 1962 story for Barron’s. Leuthold Group LLC has a version known as VLT Momentum that Steve Leuthold, the research firm’s founder, developed after reading the Barron’s article.
Coppock, who died almost two decades ago, wrote that his indicator gave “a picture of the emotional factor” behind stock swings. He advised investors to buy shares in anticipation of “an important, sustained advance” when the guide started to increase from less than zero.
That kind of shift occurred last month, according to data compiled by Bloomberg. The guide climbed to -409.4 from April’s -417.2, the lowest reading since June 1938. Calculations based on the Dow Jones Industrial Average showed a similar reversal.
Coppock calculated the difference between an index’s value at the end of each month and its closes 11 months and 14 months earlier. He added these figures together and computed a 10-month average that gave greater weight to the latest numbers. While he used the Dow industrials in Barron’s, he wrote that a broader benchmark might be an enhancement.
The S&P 500 sent more accurate signals than the Dow in the postwar era, Bloomberg’s data show. U.S. stocks advanced 16 of 17 times in the first year after the broader index’s Coppock curve turned higher. The exception followed a December 2001 reversal. For the Dow, the success rate was 13 of 19.
Source Bloomberg
One of the largest percentage gainers out there with data released at the American Society of Clinical Oncology was none other than an OTC micro-cap company called Biovest International, Inc. (OTC: BVTI). Technically, this is a majority owned subsidiary company of Accentia Biopharmaceuticals, Inc. (OTC: ABPIQ). The company has nothing to do with Dendreon Corp. (Nasdaq: DNDN) in the business, but the targets of the potential products use the body’s own immune system to fight tumors strike a similar interest. And this weekend’s data released was far better than most were expecting from a company of this size.
FREE Trend Analysis for BVTI or DNDN Here
We also covered this one in our weekly “10 Stocks under $10″ Newsletter as one with a big win under its belt. The percentages of success were that large. As noted:
At this weekend’s American Society of Clinical Oncology annual meeting, the company said its eight year Phase III clinical study has shown that BiovaxID, its personalized therapeutic anti-cancer vaccine, significantly prolonged disease-free survival in follicular non-Hodgkin’s lymphoma. The interesting notion here is sort of similar to Dendreon in that this uses the body’s own defense system in fighting tumors by stimulating and recruiting the patient’s own immune system to destroy the cancer cells and potentially prevent recurrence. The company noted that some 95% of patients showed significant T-cell activity against their lymphoma, and it noted that some 75% of patients showed a humoral immune response. The time here is almost hard to imagine, but the company noted that with a median follow-up of 9.2 years, 45% of patients remained in continuous first complete remission with a median disease-free survival of 8 years. While we hate micro-caps and OTC stocks, these claims are actually more than substantial.
For all who are curious as to the mystery behind the SPOOs buying force, I refer you to a research report published by none other than Government Sachs, titled: “Equity issuance: $100 billion YTD; we expect another $200 billion.” Of course, ramping up futures does miracles for overpriced stock follow-ons (especially with GS as lead udnerwriter). In other words, the 35% rise in S&P from the 666 bottom will likely see another 70% or so ramp up as all the equity is cleared under the guidance of the Goebbels Kommendant brigade.
GS has this to say about the reasons for why SPOOs will not see a downtick for a long, long time:
Leverage reverted to long-term trend 1 year after last bear market
Following the last bear market, it took roughly 12 months to return to trailing, five-year average leverage levels. Leverage for non-Financial S&P 500 firms as measured by Assets/Equity (excluding Goodwill) rose to 4.4x at the start of May 2009. In order to return to leverage levels in line with the five-year average, another $200 billion in equity needs to be raised. See our Weak Balance Sheet basket (GSTHWBAL) for potential issuers.
Translation: buy lots and lots of crap, crap, crap stocks. Especially buy the crappiest components of the GSTHWBAL index, as these are the ones where you will be seeing mysterious short recalls and 1,000% inexplicable intraday moves.
Financials issuance plugs capital holes, removes tail risk
The $60bn equity issuance by US Financials YTD has meaningfully plugged capital holes and better-positioned banks to absorb any future losses. Additional capital may be needed to repay TARP or make up for weak pre-provision earnings, but the bulk of issuance is behind us.
Translation: if you doubt our efficiency in guaranteeing returns, see above.
Sources of funds for past and future issuance
$3 trillion in money market fund assets and US mutual fund positioning has helped digest recent issuance and should support future deals.
Another chapter in the continuing decline of Citigroup Inc., once the nation’s largest bank, was written Monday as the company was ousted from the Dow Jones Industrial Average, to be replaced by insurer Travelers Cos. — a company with which Citigroup entered an ill-fated marriage a decade ago.
Cisco Systems (CSCO) and Travelers (TRV) will replace General Motors Corp. (GM) and Citigroup on the Dow Jones Industrial Average, Dow Jones Indexes said.
The changes will take effect at the opening of trading on June 8.
The move was triggered by General Motors’ filing for bankruptcy earlier Monday. “A bankruptcy filing immediately disqualifies a stock regardless of a company’s history or its role as a cultural icon,” said Robert Thomson, managing editor of The Wall Street Journal and editor-in-chief for all of Dow Jones.
“We were reluctant to remove Citigroup at the height of the financial frenzy, but it is clear that the bank is in the midst of a substantial restructuring which will see the government with a large and ongoing stake,” he said in a statement. MarketWatch, the publisher of this report, and parent Dow Jones are News Corp. subsidiaries.
Full Story: http://www.marketwatch.com/story/travelers-replacing-citigroup-in-dow-industrials
Courtesy of David Ristau at The Oxen Group
The Oxen Group, for Monday, is excited about the prospects for Toyota Motors Corp. ADR (TM). The company has a number of bullish fundamental and technical indicators that are appearing going into Monday’s trading. For one, GM’s bankruptcy will help the company. In the short term, it appears good for Toyota Motors. However, in the long term, GM will most likely want to try and build smarter, more efficient cars that will challenge some of Toyota’s market, but how that comes about and when is very questionable. For that reason and until GM recovers, Toyota can continue to dominate American, Japanese, and European markets. The market is taking the news well and futures are up significantly in pre-trading already. Further, Toyota Motors announced that their Prius is selling through the roof in Japan, beating their expectations. This news is especially bullish considering the financial times for Japan, which may lend a hand to the increased demand. Either way, it is good news for Japan, which sent TM shares up in the Japanese market. Technically, the stock has seen upward momentum over the past week, but the stock still has a lot of room to go on slow stochastics and is not close to its upper bollinger band. This means that the stock should see continuous, sustained growth and there are still many buyers on the sidelines.
Buy Toyota to welcome in a new auto era: Entry:
Recommend buying within first 10-25 minutes after slight pullback.
Exit: We recommend exiting after a 2-4% increase.
Upper Resistance: 85.50 – 86.00.
FREE Trend analysis for TM Here
Courtesy of The Market Guardian
Treasury yields have surged since President Obama came into office. He won’t be the first President to learn that you absolutely have to respect the bond market….
# Quarter million jobs could be lost in GM bankruptcy.
# The South Korea won ends at its strongest level in more than seven months.
# World markets gain as China manufacturing growth piques recovery hopes; HK jumps 4%.
# Delphi wins extension of bankruptcy loan, talks with GM, Treasury proceed.
# Chrysler could exit bankruptcy reorganization as soon as this week.
# Chrysler wins court approval to sell assets to Fiat-led group.
# Elan in talks to sell stake to Bristol-Myers.
# Germany’s backing for a Russian- backed bid for GM’s Opel unit promises deeper ties between Moscow and Berlin.
# GM to file bankruptcy; US will take 60 percent ownership and attempt to reorganize carmaker.
# GM’s UAW members approve contract amendments that may ease bankruptcy exit.
# Ingersoll sees little sales lift from US Tax credits.
# EU regulators are pursuing tough new sanctions against Microsoft, may force it to add rival browsers to Windows.
# German govt selected Magna Intl as a partner for GM’s Opel unit.
# PL Corp. to sell its Long Island generation unit to J-Power for ~$135M + working capital.
# Tiffany’s Q1 net down 62% to $24.3M as revs fell 22% to $523.1M.
# Toyota leads a 19 percent drop in the country’s vehicle sales last month.
On March 30, 2009, President Obama laid out a framework for General Motors to achieve viability that required the Company to rework its business plan, accelerate its operational restructuring and make far greater reductions in its outstanding liabilities. After two months of significant management engagement, General Motors has developed such a plan and has already begun to make progress toward its achievement. The Company has also secured commitments of meaningful sacrifice from all of its major stakeholder groups, sacrifices sufficient for this plan to proceed forward. As a result, the President has deemed GM’s plan viable and will be making available about $30 billion of additional federal assistance to support GM’s restructuring plan. To effectuate its plan, General Motors will use Section 363 of the bankruptcy code to clear away the remaining impediments to its successful re-launch.
For the better part of a century, The General Motors Corporation has been one of the most recognizable and largest businesses in the world. Today will rank as another historic day for the company—the end of an old General Motors, and the beginning of a new one.
General Motors Restructuring – Shared Sacrifice
The President made clear throughout this process that every one of the Company’s stakeholder would be expected to sacrifice, and that none would receive special treatment because of the involvement of the government. The resulting agreement is tough but fair, and has garnered broad support from GM’s major stakeholders:
* Operational restructuring: GM is undertaking a significant operational restructuring that will address past failures, dramatically improve its overall cost structure, and allow the company to move toward profitability even if the auto market recovers slowly. As a result of this restructuring, GM will lower its breakeven point to a 10 million annual car sales environment. Before the restructuring, GM’s breakeven point was in excess of 16 million annual car sales.
* The UAW has made important concessions on compensation and retiree health care that, while difficult, will help save jobs for active employees, pensions and health care for retirees, and make GM more competitive. In virtually every respect, the concessions that the UAW agreed to are more aggressive than what the Bush Administration originally demanded in its loan agreement with GM. Among other things, the UAW’s existing VEBA – to which GM has a $20bn obligation – will be replaced by a new VEBA as described below.
* The Steering Committee to a portion of GM bondholders has confirmed that bondholders representing at least 54% of GM’s unsecured bonds have agreed to exchange their portion of the Company’s $27.1 billion unsecured debt for their pro-rata share of 10% of the equity of new GM, plus warrants for an additional 15% of the new Company. The Steering Committee confirms that the number of individual and institutional bondholders that support this deal is now over 1,000. The bankruptcy court process will be used to confirm this treatment for those bondholders and other unsecured creditors that failed to accept or did not participate in the offer that was accepted by the aforementioned majority.
* Painful but necessary restructuring steps will also be implemented. In order to size GM’s footprint to its current share but also allow for volume growth when the economy and the automotive market rebound, GM has planned to reduce its plant operations. Today GM is announcing its intention to close 11 facilities and idle another 3 facilities.
Details on the Creation of New GM:
The newly organized GM will purchase substantially all of the assets of the old GM needed to implement its business plan out of a chapter 11 in exchange for the U.S. Government relinquishing the majority of its loans to GM.
* This new GM will establish an independent trust (VEBA) that will provide health care benefits for GM’s retirees. The VEBA will be funded by a note of $2.5 billion payable in three installments ending in 2017 and $6.5 billion in 9% perpetual preferred stock. The VEBA will also receive 17.5% of the equity of New GM and warrants to purchase an additional 2.5% of the company. The VEBA will have the right to select one independent director and will have no right to vote its shares or other governance rights.
* The GM qualified pension plans for both hourly and salaried employees will be transferred to the New GM as part of the purchase process.
* The U.S. Treasury is prepared to provide approximately $30.1 billion of financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment. In exchange for funds already committed by the U.S. Treasury and the new injection of $30.1 billion, the U.S. government will receive approximately $8.8 billion in debt and preferred
stock in the new GM and approximately 60% of the equity of the new GM. The U.S. Treasury will also have the right to appoint the initial directors other than those that will be selected by the VEBA and the Canadian government.
* The Governments of Canada and Ontario will participate alongside the U.S. Treasury by lending $9.5 billion to GM and New GM. The Canadian and Ontario governments will receive approximately $1.7 billion in debt and preferred stock, and approximately 12% of the equity of the new GM. Based on its substantial financial contribution, the Canadian government will also have the right to select one initial director.
* Based on these steps, the new GM will have far less debt and a world class balance sheet. This will allow the company the financial stability to weather future market downturns and generate significant excess free cash flow to invest in the business.
* The new GM will also pursue a commitment to build a new small car in an idled UAW factory, which when in place will increase the share of U.S. production for U.S. sale from its current level of about 66% to over 70%.
Principles for Managing Ownership Stake
Consistent with the goal of clearly limiting the government’s role as a reluctant equity owner but careful steward of taxpayer resources, the Obama Administration has established four core principles that will guide the government’s management of ownership interests in private firms. These principles will apply to the U.S. government’s equity stake in GM:
* The government has no desire to own equity stakes in companies any longer than necessary, and will seek to dispose of its ownership interests as soon as practicable. Our goal is to promote strong and viable companies that can quickly be profitable and contribute to economic growth and jobs without government involvement.
* In exceptional cases where the U.S. government feels it is necessary to respond to a company’s request for substantial assistance, the government will reserve the right to set upfront conditions to protect taxpayers, promote financial stability and encourage growth. When necessary, these conditions may include restructurings similar to that now underway at GM as well as changes to ensure a strong board of directors that selects management with a sound long-term vision to restore their companies to profitability and to end the need for government support as quickly as is practically feasible.
* After any up-front conditions are in place, the government will protect the taxpayers’ investment by managing its ownership stake in a hands-off, commercial manner. The government will not interfere with or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by these companies.
* As a common shareholder, the government will only vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions. While protecting taxpayer resources, the government intends to be extremely disciplined as to how it intends to use even these limited rights.
Warrantees:
* GM will continue to honor consumer warranties. This past week, the U.S. Treasury made available the Warranty Support Program to GM and $361 million was funded to a special vehicle available to provide a backstop on the orderly payment of warranties for cars sold during this restructuring period.
The Bankruptcy Process
During this process, GM will continue operating in the ordinary course. From an operating perspective, the day after the filing will not be materially different from the day before the filing. The following parties will be treated as described below:
* Employees: Employees will get paid in the ordinary course, including salary, wages and ordinary benefits. Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to New GM.
* Suppliers: GM will seek authority at its “first day” hearing to continue to pay suppliers in the ordinary course. In addition, the U.S. Treasury’s Supplier Support Program will continue to operate, and GM suppliers benefiting from the program will continue to receive that support.
* Dealers: GM will seek authority at its “first day” hearing to honor its customer warranties in the ordinary course. Moreover, GM will seek to continue to honor its dealer incentives for those dealers who are expected to continue to be part of GM’s distribution network going forward. There are some dealers that GM has identified that will not continue with GM. It is expected that the terminated dealers will be offered an agreement to orderly wind down their operations over the next 18 months
* UAW: The modified labor agreement reached between the UAW and GM will be operative and will be assumed by the New GM.
Big Thanks BNO
