Before we hear (hopefully not) any more bad news from the banking institution (if any) it seems General Motors Corp.’s (NYSE: GM, stock) overdue problem is running out of fuel and is set to be known as early as end of this month – May 31st. People are betting that GM will have no other choice but to file for bankruptcy protection and the stock price plunged more than 25% on Friday to close at $1.43 a share, less than 50 cents away from becoming a penny stock. The last time a big chip became a penny stock before quickly rebounded was not many months ago – Citigroup. But there’s difference between both stocks.
While the U.S. government cannot afford to see Citigoup collapse, the Obama administration doesn’t really care if GM vanished from the motor industry, at least temporarily. In fact the Dow Jones erased only 15-points despite 25% plunge in GM’s stock price. So it’s OK for GM to call it a day because it’s 25% slide only constitute about 0.04% of Dow’s decline, thanks to the already low price of the stock. The U.S. government is prepared to cancel most or all of its existing debt in GM and invest in a “new” GM, just like how you play those video games – reload from the last save file when your character was in good condition.
Sure, the Americans still love the trucks and truck-based SUVs produced by GM but now is not the time the consumers would buy without thinking. There’s no doubt that GM will emerge stronger after the “reset” without any debts and this giant will starts making billions of dollars of profit very soon. In reality now is the time to overhaul GM and salvage the assets. Of course in the process the debt holders would be affected but in the long run it’s better to own a profitable GM than what they own now.
Furthermore Americans have very little savings as most of their monies were invested elsewhere – housing and stocks, both instruments in bad shape and lost most of its value. Without much money to spend but with many holes of debts to settle there’s only one thing you can expect from the current economy scenario – the good time of pre-recession wouldn’t reappear out from the sky tomorrow. But it’s a splendid window of opportunity to scope those very cheap stocks, provided you’re done your homework.
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