FBI Beavers and Irish Bailouts and Giving Thanks

Those of you who read it may have noticed this headline in the Wall Street Journal: "U.S. in Vast Insider Trading Probe" (http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html?mod=WSJ_hp_MIDDLETopStories). It's big, it's looking at multiple insider-trading rings, and the fallout could conceivably change the way the financial industry is allowed to do business. Some of the things the probes are looking at are:
* Was nonpublic information passed along by "expert network" companies to hedge and mutual funds?
* Did Goldman Sachs Group Inc bankers leak information about transactions that benefited certain investors?
* Have independent analysts and research boutiques been knowingly allowing clients to trade on inside information?
* Did traders at "a number of hedge funds and trading firms" improperly obtain and use nonpublic information about pending merger deals.

Ignites (http://www.ignites.com/c/124284/11924/insider_trading_probe_involves_funds_report, which may require a subscription to access) points out that currently "no mutual fund firms are identified by name as suspects, but Janus, Wellington and MFS are known to be among the clients of one analyst whom the FBI has accused of relaying inside information".

As of right now, no charges have been made, although a Federal grand jury is hearing evidence right now. Look for some indictments to be handed down in the next few weeks.

In world news, Bloomberg reports (http://www.bloomberg.com/news/2010-11-22/ireland-seeks-european-union-rescue-as-outsized-crisis-overwhelms-nation.html) that Ireland has recanted its claims from a week ago that it does not need financial aid. On Sunday, Irish Prime Minister Brian Cowen formally ate crow and requested financial assistance from the EU and the IMF. There are no official numbers - the details are still being worked out - but Goldman Sachs Group estimates that they may be tapping 95 billion euros. To put that in the market-crushing perspective it requires, Greece borrowed about 47% of its GDP. Ireland will most likely be borrowing close to 60%. If you've noticed that the futures are down this morning (and they are), this is why.

With all that in mind, we don't really have any market moving reports due out on this, the first day of the Thanksgiving trading week. Tomorrow we get the release of the Q3 2010 preliminary revision for GDP (analysts are expecting to see real GDP revised upward to 2.4% from the initial 2.0% estimate, with no change in the price index) and existing home sales (the Street is looking for a drop of 30,000 from September's 4,530,000 units). Wednesday brings durable goods orders, personal income and outlays, first time jobless claims, consumer sentiment, and new home sales. All by 10 AM. Then the markets are closed on Thursday (for Thanksgiving generally and, it appears, specifically for giving thanks for not having been indicted yet), and they close early on Friday.

About That GM IPO...

Bloomberg has an interesting analysis of the fallout of that IPO.

GM’s owners, including the U.S. Treasury, sold at least $15.8 billion of common shares at $33 each, making it the second-largest U.S. IPO on record after San Francisco-based Visa Inc.’s $19.7 billion sale in March 2008, a statement and data compiled by Bloomberg showed. An overallotment option and a sale of preferred shares may boost the total raised to $23.1 billion, more than the $22.1 billion sold by Agricultural Bank of China Ltd. in the largest IPO of common stock in history.

Sounds pretty good, right? I mean, I don't know about you, but I wouldn't turn my nose up at between $15.8 billion and $23.1 billion.

There's a catch, though. Over the last two years, GM has received around $50 billion in bailout loans (the Bloomberg article puts it at $49.5 billion, but what's a measly $500,000,000 between friends?). As a result... well, I'll let the Bloomberg article speak for itself:

The Treasury needs to sell all of its GM shares at an average price of $43.67 to break even on its investment, data compiled by Bloomberg show.

GM closed at $34.19 today, so we only have to hope it goes up at least 27% and then stays there while the Treasury unloads somewhere between 500,065,254 and 553,847,273 shares of common stock (which is roughly 37% of the outstanding shares of GM). All without crushing the price per share of GM.

Put another way, it's P/E ratio needs to drop to about 5.89. Now, looking at the following facts from the Bloomberg article:

GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show.

And:

At $33 a share, GM is valued at 7.8 times this year’s earnings, based on its net income in the first nine months of 2010. Dearborn, Michigan-based Ford Motor Co. trades at 8.1 times analysts’ estimates for 2010 profit, the data show. Ford has been the world’s most profitable automaker this year through September.

This leaves me with no real hope that we, the taxpayers, will see our investment pay off.