GMAC Prospect

What else does she have?

Could she handle a drop in yield?

Personally, I would sell at least the two longer maturity issues.  If this is all her money I would def sell the shorter ones two.  Seems like in between bad news the bonds have rallied a bit.  I took the last opportunity and cleared the GM issues out of my book. Not worth the headache. 

If she has another 300k somewhere you might keep the shorter ones, my gut tells me this doesn't end well for GM or their investors either debt or equity holders.  Either way, not worth the headache.

Could she use the tax loss this year?

GMAC isn’t GM…

[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000.  That is it.  She is "nervous, but said she will follow any advice...either way".  Thoughts? [/quote]

Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.

[quote=mikebutler222]

[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000.  That is it.  She is "nervous, but said she will follow any advice...either way".  Thoughts? [/quote]

Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.

[/quote]

Are you betting she dies before GM files chapter 11?

No Death put- she does not care about that anyway.



She paid $200K.



This is ALL she has.



She needs income, but can sacrifice. 



I guess I am in a quandry in selling the shorter ones at such terrible prices (mid-low $90’s). 

no  reason to sell them. If GM spins off GMAC, you will probably
see an upgrade in the ratings. S&P has already stated they may
increase the bond rating within the next 6 months. 

If GMAC is spun-off from GM, the ratings should rise (since they are the only profitable arm of GM right now), and you would look like a hero. 

Are the bonds maturing or become callable in those dates.  Interest rates may rise and the long bonds may not be called and she might be able to keep her income stream.  You might want to consider selling the long term bonds, take a capital loss if she can use it and reinvest into better credit worthy bonds or other income instruments.  But I imagine she has a good income stream from the existing GMAC holdings?

I have clients with GMAC and as has been pointed out GM and GMAC are two different things.  Remember when Sears owned Discover Card and sold it off?   If GM sells a major portion of GMAC as seems likely the credit rating on GMAC will rise to above investment grade again and their should be a recovery in the market value of the bonds.   I always have to remind my clients why we bought the bonds (income) and that the value on the statement is only IF they sell the bond.  Barring GMAC going BK too (unlikely) the bonds will return principle when held to maturity or if called.  I am advising my clients to hold on and not panic.  Selling now will definitely lock in a loss.

I would hold…You already will note better bond bids for GMAC vs GM.

I have had 2 phone calls this morning from clients who hold GMAC 2018. We are holding tight, for the same reasons that have been stated above. One client now wants to buy insurance on the bonds for 12% of the original value…therefore, we have been discussing annuities for the last half hour.

[quote=joedabrkr][quote=mikebutler222]

[quote=rightway]I got a referal today and the client was 71 and had $74,000 in a money market account and $175,000 in GMAC Bonds (Due 06, 08, 10, 12)- Par $200,000.  That is it.  She is "nervous, but said she will follow any advice...either way".  Thoughts? [/quote]

Are these the ones with the "death put"? I assume they're way down from where s/he bought them. If they're for income, I wonder why s/he really needs to part with them. IOW, more info, please.

[/quote]

Are you betting she dies before GM files chapter 11?

[/quote]

No, GMAC and GM aren't the same, the risk isn't the same. GMAC is a very likely spin-off story, and has assets to cover their bonds.

The question about the "death out" has to do with the fact that if you sell them now, the loss is realized, but if she don't outlive the bonds, her heirs get 100% back. If she owns them for income, given the fact her family is protected, I'd be very slow to sell them now.

Why would GM  spin off the only profitable thing it has? If it did so it would be suicide for GM?

Just my opinion and  I could be way off base? 

I have foundation that is a prospect that a TOP PRODUCER ( Mentioned in magazine article last month) Who stuck this 70% of this foundation in GMAC bonds! The investment policy clearly states no junk! And why would you risk 70% of a foundations money in one  companies bond?

Needless to say he will be gone the next meeting. Like I have said before just because a rep can sell does not mean he knows #$@# about managing money! 

GB -

GMAC is a health organization, attached to GM, as we all know is on shaky ground (imagine gangrene). They are looking for a financial institution (most likely), to partner with on GMAC.......to raise cash to invest in GM, and so they can get a seperate bond rating for GMAC. People who hold GMAC should be ok, although it has become a little too volitle for many clients who own them. Meanwhile, there is some opportunity in buying GMAC secondary paper right now, for obvious reasons.

MA -

Health, or healthy?

sorry - healthy

[quote=Greenbacks]

Why would GM  spin off the only profitable thing it has? If it did so it would be suicide for GM?

Just my opinion and  I could be way off base? 

I have foundation that is a prospect that a TOP PRODUCER ( Mentioned in magazine article last month) Who stuck this 70% of this foundation in GMAC bonds! The investment policy clearly states no junk! And why would you risk 70% of a foundations money in one  companies bond?

Needless to say he will be gone the next meeting. Like I have said before just because a rep can sell does not mean he knows #$@# about managing money! 

[/quote]

70% of anything in one account is dumb, but were they junk when he bought them.

who cares if they were junk or AAA rated. To have 70% of a foundations account in one issue is retarded. The guy deserves to see those ACAT requests come Monday morning… Green backs- what kind of coin you looking at there? What are your reco’s gonna be? You know, just for $hits and giggles…

The unions are fighting any separation of GM and GMAC. They realize that without GMAC, their company and their union contracts are toast. I predict that a bankruptcy court will ultimately decide whether to separate GM and GMAC, but all this is speculation.

Here's the crux of the matter: you and I don't know what's going to happen, and this client appears to have a large chunk of her life savings tied up in an investment that could be subject to extraordinary risk. What does common sense tell you to recommend? 

Read an interesting article over the summer on GM that said it was basically an HMO and a pension manager.  The article talked about how the unions have basically taken the company away from the shareholders over the years...a classic example of how being chronically soft with unions can ruin a company's profitability.

I believe that in the end analysis, GM will find a way to survive...at least long enough for my 2-3 year GMAC bonds to mature with their 8% YTM intact.  If you think that's risky, you shouldn't be in the stock market.  As long as you are issuer diversified, it's a reasonable risk to take for most folks.

[quote=blarmston]who cares if they were junk or AAA rated. To have 70% of a foundations account in one issue is retarded. The guy deserves to see those ACAT requests come Monday morning... Green backs- what kind of coin you looking at there? What are your reco's gonna be? You know, just for $hits and giggles..[/quote]

I will go in with a third party money manager! Possibly using Gannet Welsh & Kohler Core bond strategy. I will let the money managers handle bonds they are much better at then me! On the equity side it would be DFA.

First account would be about $800,000 second one about $8 million.

well get after it then and let us know when the acats are signed.

Oh yea!!, …love that union mentality…I wonder if they realize, that…if GM goes BK, and ultimately fails,…They will all be out of jobs!!! and 70% of those folks, will not come close to replacing there current pay and benefits. I may be opening a can of worms here, but I have to say it…Unions suck the life out of progress, and are the downfall for many organizations and communities.  FACT!!! A bunch of entitled, lazy mofo’s…But that’s just my opinion.

If you replaced union in your post with corporation you would sound
just like a left wing kook. I agree that the autoworkers have got some
big problems in the way they been doing business but… Your gonna tell
me the Communication workers aren’t a force for improvement in their
industry?



I think until lefties stop throwin’ stones at companies and righties
stop doing the same at unions it might be less of a bullsh*t tug of war
and more like to companies contracting to provide services for another,
don’t you think? We need to put the days of the Robber Baron and The
Teamsta Boss behind us and realize that both need to respond rationally
to market forces.

[quote=sethllanford]Your gonna tell me the Communication workers aren't a force for improvement in their industry?

[/quote]

Force for improvement for their member's income and benefits? (Not that there's anything wrong with that) Sure. A force for improvement in the industry? Nah...

There was a time when unions were needed to protect the workers from exploitation around the turn of the last century. People and small children worked and died under the most apalling conditions. Then, they realized that if they banded together they could force major reforms on the industry owners.  That was a good thing......then.

Now, the unions are destructive forces that are sucking the life out of the industries where they work.  Without thinking about the long term consequences of their actions they are cannibalizing and gutting the companies that provide them with jobs.  The union leadership doesn't care. They are pandering to the union base and making a damn good living out of being a professional lobbyist and activist at the expense of the rank and file.  Member of most unions are literally forced to pay dues and have no say so over how those dues are spent.  Unions are mostly responsible for the corruption of the elected officials who disregard the wishes of their constituants and allow themselves to be influenced by the paid union lobbyists.   The unreasonable demands by self serving unions are the reason that the automotive industry in this country is dying, the reason that the airlines are going out of business, the reason that our schools graduate students who are barely literate, the reason this country is going to hell in a handbasket.

Do you think the teacher's union gives a rip about the students, or is more concerned about getting an even better and more expensive medical plan for the tenured teachers?  Why is it that charter schools, that are not unionized, turn out much better educated students?   Even home schooled students outperform the unionized public school system.  The stranglehold the unions have on our economy is a disaster.

Now they are trying to take the destructive and economic growth killing policies forced on the big corporations to the small business arena. Forced medical coverage, forced pension plans and the so called "living wage" will do nothing less than force small business owners to lay off employees or even go out of business.  

Don't even get me started on the ridiculous costly Americans with Disabilities act and how negativley this is affecting small businesses!!

Ok, I guess I did open the can of worms.....good for me!!

I agree, there was a reason and time for unionization, but as BL mentioned they have turned into a destructive force. I live in a 3rd tier city, that has wonderful potential. Unions are 50% of the roadblock to progress.

I owned a company for seven years. On some job sites, we had union workers picketing my customers, because they did not hire union workers. The customers got competitive bids, that allowed for maybe $15 - $18 per man hour. The unions would have wanted $25 - $35 per man hour. Union members, in there small, dillusional, little pea brains actually think that the companies should employ them.....because they are union. Do you think the quality of work is better with a union.??......absolutely not....it's worse. And, oh, by the way......IT'S THE CUSTOMER'S FRK'N CHOICE, WHAT CONTRACTORS THEY EMPLOY. Unions are the comlpete opposite of a free competitve market. And, you cannot fire union workers, for lack of job performance........there "contracts" won't allow it. What a frk'n joke. I've said it before......How are we going to be competitive, globally, when we have organizations, that operate at the lowest level of productivity, and have such high costs?

Seth - I also hate what's going on with CEO pay. Let's downsize the work force by 5,000, cut costs, not pay a dividend to shareholders....and in a lot of instances have sub par performance otherwise,......but pay the CEO, and senior management disgusting salaries and bonuses.

BL -

Schools, are a bottomless pit for money. You could give them billions....the bottom line is, the kids either want to be there or they don't.

Communications workers have been pretty much a partner in many coms
firms and phone companies expansion. A buddy of mine owns a startup and
had great things to say about them on the other hand the Electrical
workers, different story. Both sides propaganda is enough to drown in
though I’ll give you that. The discussions always get a bit too heated
and nobody hears each other out.



One persons union is anothers strategic alliance no? If they blow it it will eventually shake out.

I'm not scared of GMAC at all, until I hear GM spend their Billions of Cash and cut their common stock dividend.

iconsult100:

I'm not scared of GMAC at all, until I hear GM spend their Billions of Cash and cut their common stock dividend.

-----------------------------------------

Your wish is going to come true. GM is obligated to Delphi for about half of the cash they have on hand (a condition of their separation). In addition, counting their underfunded pension fund ($10 billion in the red), as per the Pension Benefit Guaranty Corp (PBGC), you won't have to wait long for that dividend cut! 

Also, the PBGC has made it known that they will require a cash infusion from GMAC into the benefits side of GM, before any sale or separation.

Couldnt let this talk about unions go without comment. Unions are like lawyers, you dont like them until you need em, may not have happened yet but wait till corp america screws you and your family. IF your a regular stiff working hourly wages, (unlike most of the people who post here, I know what kind of money you all make or will make eventually) and your company screws you, who you gonna call?   It was that way 50 years ago and still is today. Corporate america wants to squeez blood out of a turnip, so obviously they squeeze their employees till they squeal.   Unions do alot of good, they stand up for the little folks and helped advocate and start up 401k and profit sharing plans that are now rollovers for all you fine advisors to manage.   When I hear of GM laying off 30,000 people, I know some are happy because it makes the company stock look better, I see 30,000 families being uprooted.   Call me a liberal, but my only wish is we had a finanical advisor union we could all join to fight the compliance Jihad and other crap that has made our business so much less fun!      

Unions = Legalized Extortion. Wake up and smell the coffee. Jeeeeez

[quote=Deaniac] When I hear of GM laying off 30,000 people, I know some are happy because it makes the company stock look better, I see 30,000 families being uprooted.   Call me a liberal, ..  [/quote]

Two things. First, EVERYONE thinks of the families, not just you. However without lay-offs, bad as they are, EVERYONE working at GM would lose their job when the company goes out of business (which it might do anyway). You can’t simply wish away GM’s (or any other company for that matter) fiscal troubles. Michael Moore never understood that when he went after Roger. There are plenty of other liberals just as economically illiterate as he is.

Second, as was mentioned at the press conference, hopefully most jobs of the 30k will go away by way of not replacing retired or otherwise voluntarily leaving employees. IOW, attrition.

Unions provide balance between employers and their employees. So long as membership in the union is voluntary, the union bosses aren’t screwing the members and the union itself isn’t making demands that bankrupt the business in the long run, I have no problem with them. The bad thing is often unions fail one or more of the three tests I mentioned.

30,000 employees that have like 35,000 employees who have their full time in to retire, but can't afford to.  Thats right their pension + SS isn't anywhere near the six figure incomes most of them bring home with overtime.  Since the auto sector has been tough personal bankruptcies in detroit area have soared and the detroit news has done several articles showing most of these are autoworkers used to making 100K+ now they're making 60K and can't make all those payments boat, motorcycle, snowmobiles, cottage, two 35K vehicles, big house, cc, home equity, etc etc etc.

Sure this will cause some problems for the avg UAW worker, but they dug their own hole.  I have two degrees and my CFP I will never have all the toys the avg. UAW worker has, but it's cool to have friends to borrow them from.... :)