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Sunday, May 31, 2009


The GM Fiasco

We continue to hear that GM will be declaring bankruptcy. with the bondholders belatedly agreeing to take the administration's meager offer so that the Government can become majority owner, and the UAW can safeguard as many jobs and shares as possible. So basically, this is a campaign payoff to the UAW in conjunction with a nationalization of the company.

The problem is that the company that emerges is doomed. The taxpayer will lose most if not all of his investment. And the UAW will eventually have to fall on the Pension Benefit Guaranty Corporation to salvage anything for Union members (though union leadership will walk away with all they can). Here's why.

The new GM will not be innovating anything. New products will be "green oriented" - translation - low performance, no sex appeal, no value. Dealerships will be disappearing like crazy. Why would buyers have any interest in a government run car company when you can buy a Toyota or even a decent Ford product? With no buyers and no sellers, this company will not be able to support even a reduced cost structure.

Did the bondholders really have a choice? I don't actually know. What I do think I know is that they will end up with worthless paper.


Yesterday was Benny Goodman's 100th birthday. The King of Swing, who died over 20 years ago, has been the subject of WKCR's Festival the last 16 days, when they played Goodman round the clock. You can hear WKCR in the NY area at 89.9 FM or worldwide on the web, wkcr.org.

The festival has been entertaining to the nth degree. It's amazing how well his music has held up, whether in the band band or in the small group mode. Besides being perhaps the greatest clarinet player ever, Goodman was one of jazz's greatest innovators, being the first to integrate the bandstand, touring the Soviet Union, and exposing great arrangers like Fletcher Henderson to a wider audience.

Goodman also brought jazz to the concert hall, most notably at the 1938 concert at Carnegie Hall. For a good idea of the risk involved and the excitement that resulted, see the biopic "The Benny Goodman Story" that starred the almost somnolent Steve Allen in the title role (supported by Donna Reed!).

Of course, Goodman was not unrivaled. Artie Shaw actually was convinced that he was superior to Goodman as a clarinetist and bandleader. While I would never deny Shaw's great talent, there was no reason for Goodman to take a back seat to him, unless the subject was how to bed the girl singer.


The markets continue to be of great interest, and our stock portfolio provided more interesting fodder this week. For one, Bristow (BRS) got favorable reviews from analysts after making a significant investment in a Brazil helicopter business. With oil prices going up again, our oil service stocks have been pretty lively.

First Niagara (FNFG) became among the first of the banks to repay its TARP loan, an admittedly small one. Taxpayers' investments in banks will do much better than their auto investments.

We also got a dividend increase from LOW, since the resale of all of these foreclosed homes is helping the home improvement businesses survive the housing debacle. On the other hand, specialty steelmaker Worthington (WOR) lowered its dividend. Perhaps the surprise is that WOR is continuing the dividend at all.

Last Tuesday, we bought 100 shares of Fastenel (FAST) at 32.07, a "zero buy." The next day, we sold 400 shares of Books A Million (BAMM) out of the IRA in what seemed like a well - timed sale since the market went pretty much straight down that day. However, BAMM was one of the few stocks that went up! We don't worry about those ironies since we sell only parts of our position at a time and have plenty of shares left in BAMM. The sale price on the opening was 6.49. We had bought 100 at 3.65 on 5/10/02 and the other 300 for 9.42 on 2/19/08. So we took a little loss and got no tax benefit for it, but we have nice gains on most of the remaining shares. We'll start the week with another sale tomorrow.

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