GM, which I can’t believe could on anyone’s buy list, was down hard again today after Merrill Lynch issued a note that bankruptcy is not out of the question. I would be very nervous holding GM common stock.
The situation has gotten so serious there that it is questionable whether holders of the common stock really even own something. At some point the holders of the senior debt will effectively control the company. If you want to be “in” GM, I would strongly recommend selling the common and buying senior preferred instead.
Bethlehem Steel used to be one of the largest and most admired companies in the world. But they ended up like GM in a declining market where they had the wrong products and very high fixed costs. One day, Bethlehem Steel just canceled the common stock and the bondholders owned the company.
I hear chatter about how at some point GM will be a great trade. Thanks, but no thanks. I don't need that kind of risk in my book.
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