pThe GM news is a big business story, the largest industrial bankruptcy in history./ppIs it a big investment story?/ppWe encourage investors to be a href=”http://oldprof.typepad.com/a_dash_of_insight/2009/05/investors-should-be-politically-agnostic.html” target=”_blank”politically agnostic/a, to distinguish between interesting political stories and their own investment decisions.  We acknowledge, with thanks, the a href=”http://abnormalreturns.com/2009/05/28/may-you-live-in-interesting-times/” target=”_blank”comments from Abnormal Returns /aon this distinction, as well as reader emails./ppstrongThe Business Pitch/strong/ppThose doing business stories — television, print media, or online, have an audience.  Their consumers are more affluent, more educated, and more conservative than the average reader.  One result of the current economic downturn is that every media source is playing to the existing audience in a quest for hit count and ratings./ppThe result is predictable.  Here are the main business themes (sources omitted since there are so many):/pul
liThis is a huge government bailout, destined for failure;/li
liThe union is getting a gift, bondholders are getting shortchanged;/li
liObama is setting a precedent for future actions;/li
liThe government will be deciding which cars should be built;/li
liThe taxpayer will lose this investment, and perhaps more./li
/ul
pWe are not going to disagree with these positions, since that is not our mission.  Each point is hotly contested by Obama supporters.  We shall leave it as that, although regular readers know that we believe in free markets and generally support only government actions that create useful private incentives./ppstrongThe Investment Implications/strong/ppThe first question is obvious.  Did any skepticism about the expected GM bailout help an investor?  If it caused you to sell short GM stock, the answer is “Yes.”  If it caused you to sell short the rest of the market, the answer is “No.”/ppWhy the disparity?/ppThe market critics are relying upon a long causal chain, where something bad is going to happen many months in the future, often requiring several different events./ppMeanwhile, the immediate impact is that fewer jobs will be lost, auto parts suppliers will stay in business, and the general adverse economic impact will be mitigated./ppThirty billion dollars was viewed as a lot of money at the time of the Bear Stearns buyout.  Here at “A Dash” we think it is still important, despite the massive scale of other government interventions./ppOur own time horizon is one year or less.  This viewpoint is widely shared by investors, so it is no use fighting it.  Most people see the immediate economic impacts as positive, despite the pounding criticism from the punditry./ppPerhaps it will all play out badly in a year or so.  We will have time to adjust our positions as the story plays out.  If Obama and Barney Frank start dictating the details of auto production, there will be time to react./ppMeanwhile, investors must decide whether they want to use their politics as the basis for their investments./p
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Last 5 posts by Jeffrey Miller

• A Tough Nut to Crack - October 29th, 2009
• ETF Update: Looking to the Internet - October 25th, 2009
• Healthcare Reform Becoming Less Likely - October 21st, 2009
• ETF Update: Another Look at the Banks - October 18th, 2009
• Identifying Quackery (and Other Mistakes) - October 6th, 2009