Stock Market Report - 06/01/09

Monday June 1, 2009
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After closing the month of May with some nice gains, the stock market started June with a bang. The Dow Jones Industrial Average gained 231.38 points, or 2.72%, to 8,731.71, NASDAQ rallied 50.97 points, or 2.87%, to 1,825.30 and the S&P 500 index advanced 24.19 points for a gain of 2.63%, to 943.33.

The strong moves were spurred by economic data, Personal Income and Personal Spending from the Commerce Department, that was released this morning.

According to the economic data, personal income was up 0.5%, versus estimate of –0.2%, while spending was down 0.1%, versus estimates of –0.2%. The upside surprise helped the markets along, although futures were already up significantly before the release of the news.

Also, the Insitute for Supply Management this morning put out its factory index report, showing a rise to 42.8 in May, from 40.1 in April. Economists were forecasting the number would come in at 42.0

A rebound in new orders was a significant factor, with the new orders index climbing to 51.1 in May from 47.2 in April. This was the first time that the index has been above 50 since November of 2007.

Reports that General Motors (GM) would be filing for bankruptcy today, was also a driver in moving the markets higher, or at least, did not serve to temper the bullish mood. That the markets would react positively to the bankruptcy filing of one of the nation’s most industrial of companies was a head scratcher, but the expected orderliness of the bankruptcy reassured traders.

GM’s stock closed unchanged at $0.75, but actually hit a high of $1.01 on the news. The stock did hit a low of $0.27.

With the bankruptcy filing, GM, along with Citigroup, is being dropped from the Dow Jones Industrial Average. GM will be replaced by Cisco (CSCO) and Citi will be replaced by Travelers (TRV).

June 1, 2009 | Filed Under Stock Recommendation, Technical Analysis, Trading Idea | Leave a Comment 

GM & Citi Being Dropped From Dow Jones Index

Tuesday June 2, 2009
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Dow Jones & Company announced changes to the composition of the Dow Jones Industrial Average today, as a result of the bankruptcy filing of General Motors (GM). The company also took the opportunity to make additional changes, announcing that banking giant Citi (C ) will be dropped from the index.

Cisco Systems (CSCO) will replace General Motors and Travelers Companies Inc. (TRV) will replace Citi.

Interestingly enough, Travelers was once part of Citi, then Citicorp, but was spun off in 2002.

The link between the two companies started in 1986 when Sanford Weill bought a small Baltimore, MD commercial finance company called Commercial Credit in 1986. Two years later, he took the company public, with bigger plans to coddle together a large financial supermarket firm.

Within two years of going public in 1988, he acquired Primerica Corporation, which had famed brokerage firm Smith Barney amongst its holdings.

In 1992, Primerica started acquiring a 27% stake in Travelers Insurance. Travelers logo was the red umbrella, which Citi later adopted and used for years, but then in January 2007, after a brand review, the company sold the red umbrella logo back to Travelers and adopted its current red arc over the Citi name logo.

The Travelers group then acquired Shearson-Lehman’s retail brokerage from American Express in 1993 as well as the remainder of Travelers’ shares.

In 1996, Travelers acquired Aetna’s property and casualty business and in 1997, acquired Salomon Brothers and created Salomon Smith Barney, then the nation’s third largest investment house.

In 1998, Travelers Group merged with Citicorp to create Citigroup, a global financial services company serving 20 million customers worldwide. Citigroup’s businesses include asset management, banking, credit and charge cards, insurance, investments, investment banking and trading.

While a financial supermarket that was all things to all its customers seemed like a brilliant idea on paper, Wall Street was not so impressed and the Citigroup stock languished for years, with the financial supermarket model being blamed.

In December, Citigroup announced it was spinning off Travelers Property Casualty Corporation by selling up to 20% in an initial public offering with the remaining shares being spun off to Citigroup shareholders. The initial public offering took place in Q1 of 2002, and was concluded by the end of 2002.

June 1, 2009 | Filed Under Company News | Leave a Comment 

General Motors To File For Bankruptcy Today

Monday June 1, 2009
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Troubled automaker, General Motors (GM) is today expected to file for bankruptcy protection. The company hopes to reorganize into a leaner company and emerge out of bankruptcy within 60-90 days.

As part of the bankruptcy plan, the company will shut down 11 plants and idle three more, although details of exactly which plants will be shut down and idled have not yet been released.

The US government will provide an additional $30.1bn in financing to see the company through while its in bankruptcy and receive a 60% stake and $8.8bn in debt and preferred stock in the new company.

The Canadian and Ontario governments will loan the company $9.5bn in exchange for $1.7bn in debt and preferred stock and 12% of the equity.

The remaining stake in the company will be held by a United Auto Workers union healthcare fund. The interests of existing shareholders would be wiped out.

June 1, 2009 | Filed Under Company News, Economy | Leave a Comment 

Auto Parts Manufacturer Files For Bankruptcy

Thursday May 28, 2009
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Auto parts manufacturer Visteon (VIST), announced early Thursday morning, that it had filed for Chapter 11 bankruptcy protection for its U.S. based operations.

On March 31, the company announced that one of its subsidiaries in the United Kingdom, Visteon UK Ltd, which consists of three manufacturing plants, filed for administration with the UK High Court under that country’s Insolvency Act 1986.

The struggling company which has seen its sales suffer dramatically, as sales of automobiles dropped, reported assets of $4.58 billion and liabilities of $5.32 billion, with cash and short-tem investments of $625 million being listed.

In a statement regarding the filing, Donald J. Stebbins, the company’s chairman and CEO said “Visteon is taking this step to maximize the long-term value of the company,” “During the reorganization period, we will seek to address our capital structure and legacy costs that are not sustainable given the current economic environment. The results of these actions, combined with our innovative products and excellent product quality, will allow Visteon to emerge a financially sound and well-positioned company.”

The company, which was spun off from Ford in 2000, also announced that Ford had will support debtor-in-possesion financing. Ford is the company’s largest customer and was responsible for approximately 31% of last quarter’s (fiscal 2009 Q1) sales.

For that period, the company reported a 53% decline in revenue to $1.3 billion and net income of $2 million.

On April 30, Chrysler filed for bankruptcy protection and on Wednesday, General Motors announced that it had failed to win a debt to equity swap with its bondholders that would have had the bondholders swap their $27 billion in debt for $2.7 billion in common stock.

With the failure to get the the bondhoders to agree to the plan, bankruptcy is now all but inevitable for the company.

May 28, 2009 | Filed Under Company News | Leave a Comment 

Chrysler Given Bankruptcy Access To $4.96 Billion Treasury Loan

Thursday May 21, 2009
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Embattled automaker Chrysler LLC, yesterday won approval to borrow as much as $4.96 billion from the U.S. Treasury, while it is in bankruptcy. The debtor-in-possession financing was approved by U.S. Bankruptcy Judge Arthur Gonzalez, at a hearing in New York City.

Back on May 4, Chrysler was given interim approval to borrow $1.8 billion out of a total of $4.1 billion that was available. That $4.1 billion was then raised to $4.96 billion, the sum total of which the company can now access.

The additional funds will provide a safety backup for General Motors’ (GM) GMAC, which is now providing financing to Chrysler dealers for purchase inventory.

Objections were raised by a group of pension funds from Indiana, but were rejected by the judge who stated that they should have submitted a written objection by the court’s deadline.

May 21, 2009 | Filed Under Company News, Economy | Leave a Comment 

GM & Chrysler Eliminating 2,789 Dealerships

Friday May 15, 2009
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Chrysler and General Motors (GM) are both announcing dealership cuts to help them become leaner and more profitable.

Chrysler on Thursday provided a list of 789 out of its 3,200 Chrysler dealerships that will be eliminated and today, GM is expected to provide details of the number dealerships that it will be eliminating. It is expected that the company will cut approximately 2,000 of its 6,000 dealerships.

May 15, 2009 | Filed Under Company News, Economy | Leave a Comment