Here’s a story from the New York Post:
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June 27, 2008
GM Stock Crashes on Goldman Downgrade
Faced with a potential cash shortage, General Motors crashed yesterday to close at its lowest price since the dark days of 1974.
Shares had initially tumbled 12 percent intraday to a new trading low of $11.21 after Goldman Sachs downgraded the auto giant, warning investors to dump it because struggling GM is likely to go hat in hand to investors for more money.
The last time GM's stock was ever that low was in 1955. Humiliated GM now has a market value of $6.5 billion - less than Bed, Bath and Beyond's $7.3 billion. GM closed at $11.43, off $1.38, or about 11 percent.
GM chief Rick Wagoner disputed analysts' predictions that GM would need to raise more capital by the end of the year. It had about $31 billion in cash and credit at the end of the last quarter but analysts say the pot could empty quickly.
"We have a lot of options to fund beyond that," said Wagoner without giving any details. Some investors believe sovereign funds might come to GM's rescue with new cash infusions.
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Goldman Sachs downgrades GM to “sell” after a decline of 88% to a 53-year low! Why did they wait so long? It’s just the Wall Street way. Here’s how The Elliott Wave Financial Forecast explained this time-honored practice with charts of GM and Ford in May 2003:
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The Reason Analysts Strike Out
At Elliott Wave International, we don’t get the markets right all the time, but consider the alternative, as shown in all its glory in the charts at right. In recent months, Wall Street research has become the object of close public scrutiny. “We have serious weaknesses in the research department,” said one broker about his own firm in Monday’s edition of The Wall Street Journal. Later that day, securities regulators unveiled details of an investigation that shows “the nation’s top securities firms misled investors through overly optimistic research reports.”
The chart of GM illustrates that ratings agencies, which have no inherent conflict, are just as bad. The real reason that brokerage firms ratings are so far behind the curve of the market is that they are based on corporate “fundamentals,” which can be known only when the trend change is well past. The object of market analysis is to call the market, not corporate fortunes. Technicians do a better job of staying on top of a trend because they use signals that are derived from prices. The best tool for staying in front of the trend is the Wave Principle because it offers a basis for insight into the future form of price movement.
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Elliott Wave International's Financial Forecast, published Friday, June 27, is your one-stop ticket for the real story behind what's going on with the markets.
Click here for a sneak peek at Friday's just-published issue.
With the help of the Wave Principle, Elliott Wave International has long argued the case against GM and other U.S. automakers. Here’s a glimpse of our long-term outlook from the May 2005 issue of EWFF:
The lowering of prices by up to $2000 on some of GM’s most popular SUVs in the middle of a model year is considered “highly unusual.” It is still the early stage of a trend that will surely lead to the failure of at least one of the two remaining U.S. car companies.
GM is still in business, the long-term viability of all three U.S. car makers is in question, and a “shunning of SUVs” is one of the big reasons. In the wake of the 2000 peak [?], the July 2000 issue of EWFF identified a correlation between a fall in stock prices and a fall in the prestige of large cars. At that time, the correlation appeared as “a rising chorus of protest against SUVs.” The latest sell-off (which began last October) brings a full-scale buyers strike that is so strong some dealers refuse SUVs as trade-ins.
If history is any guide, Goldman’s downgrade simply acknowledges setbacks that are fully apparent in GM’s stock price. What EWFF readers need to know is what the “news” tells us about future stock prices. Turns out, within the context of the Wave Principle, there's a critically important message behind Goldman’s downgrade. This month’s issue The Elliott Wave Financial Forecast explains.
The Post offers another clue to the direction of the overall stock market when it says GM may “go hat in hand to investors.” This impulse is also covered in the Investor Psychology section of this month’s letter.
It's not just GM that's had a bad month. June has been unkind to lots of investors, but now the focus is on what's next. EWI's Financial Forecast can help you with cutting edge insight and advice about how to weather this ongoing storm.
Click here for a sneak peek at Friday's just-published issue.