Thursday, October 12, 2006

What's good for GM is good for ....

Guambat previously posted data suggesting the recent Dow's strength was attributable in large part to America's obsession with cigarettes and processed foods.

This report
says it's nothing much more than Kirk Kerkorian trying to corner the battered market for General Motors:

Did the Dow Jones Industrials REALLY make a new high?
* The best stock rise for the year on the DOW was by a company who's rise was almost double the rise of the second best stock on the DOW.

* This stock went up 64.52% this year, and last year everyone was wondering if it would go bankrupt. This stock that went up 64.52% is
a money losing company ... and it has been the most significant driver in the DOW reaching new highs! This same company's
stock price has consistently made "lower tops and lower bottoms" since 2002 ... in other words, it is in a long term down trend.

* The stock's high on May 31st, 2002 was $68.17. At Noon yesterday, it was $31.87 ... a drop of 53.2% from May 2002, yet it is the best
contributing stock to the DOW's rise this year by nearly a factor of 2 compared to the DOW's next best stock. By the way, the
DOW is up 14.3% since its May 31st. 2002 monthly high.

* Oh ... one more tidbit. This company's second quarter Revenues were $53,669,000,000. and it still lost $3.37 billion dollars for the quarter with a -$5.97 EPS.
And its reward for that performance was to be the #1 stock on the Dow Jones Industrials. (See GM's Earnings per Share chart and historical price chart below.)

* What company are we talking about? General Motors.

Much of GM's price increase was because of billionaire investor Kirk Kerkorian who owned 9.9 percent of GM shares and then considered raising his stake to 12 percent.
This week Kerkorian signaled he would not acquire more stock. And, some of GM's rise centered around speculation whether a North American turnaround is really under way for General Motors ... or not.

If it turns out that Kirk Kerkorian really is giving up his interest in controlling GM, then that means he would sell this 9% of GM and the
stock will once again move down to new lows.

The point of discussing all of this, is the new highs for the DOW and what effect GM's price had on it. By my calculations yesterday, if
GM's poor EPS performance resulted in the price of the stock being at neutral (a zero % gain for the year), then the DOW's
price yesterday would have been 11616 ... which would have meant the DOW never reached its "all time high".

Doesn't make a lot of sense does it?


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