- Published on Wednesday, 13 June 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 871
If it sold now, Washington would lose billions of dollars on its stake in General Motors. But it won't happen... not with this accounting trick up its sleeve.
I hate to do it -- it hacks away at my pride -- but it is time to add Government Motors to our "buy" list.
Our greedy legicritters have handed us an opportunity too good to let something like ethics or morals get in the way.
Here's the deal. If you attended ISG's 2010 conference in Las Vegas, you know I gave a dire warning... don't buy into the General Motors (GM:NYSE) IPO. The Washington-led offering would be colossal failure and ultimately a waste of taxpayer money.
Unfortunately, I was right.
If Uncle Sam sold his 26% stake in the once-mighty carmaker at today's price, the American taxpayer would lose a cool $16 billion. And the unsuspecting saps who bought at the IPO... well, hopefully you listened to my advice. Shares are down over 35% since GM hit the Street.
If you got conned into this deal alongside Uncle Sam, your fate is about to change. You've got an easy shot at making some quick money over the next five months.
Here's how the scheme unfolds.
President Obama's fate in the White House depends on one thing... the economy. And there's no easier way to sway the masses than putting a little coin in their pocket with a last-minute earnings pop from Government Motors.
My notes show GM will hand us its Q2 earnings figures on Aug. 2 -- a historically key month for the presidential campaign.
But even more important, the August date puts us on a perfect schedule for another set of earnings immediately before we take to the polls in November. In fact, it was Nov. 2 of last year when we got a preliminary look at GM's figures.
Good timing, huh?
Now... we know cars aren't easy to sell these days. The American consumer is scared out of his mind. That's why GM has relied on China for its strongest earnings growth. But now even China is slowing. Just this week we got a report Chinese car dealers are awash with unsold cars.
That's why it won't be organic growth that sends shares of GM higher just in time to boost the polls.
Instead, it will be something much more devious. Something Washington is better at than anybody in the world.
We're about to see a massive accounting trick from GM. And I've got proof.
I got word this week that GM is changing the way it makes pension payments to its army of white-collar workers.
What's happening won't mean a lick to the company's long-term profitability -- in fact, it will prove detrimental -- but it will create a one-time deception that will confuse the herd, add a few bucks to shares... and buy Obama a much-needed bump in the polls.
Essentially, GM is about to magically erase a huge liability from its balance sheet. One flick of the wand and poof... billions of dollars in long-term liabilities are gone. Abracadabra.
GM just offered 42,000 of its white-collar workers a large one-time lump-sum payout if they agree to forego future monthly pension payments.
We will know exactly how much of a burden the move lifts from the balance sheet sometime after July 20. That's the deadline for workers to "take advantage" of the big payout. The date gives GM's accountants just enough time to massage the figures into the August earnings report.
No matter what the ultimate payouts look like for those 42,000 workers, though, it will pale in comparison to what will happen to the corporate ledger when GM shifts the pension burden for 118,000 workers to a third-party insurance company.
Get this... in a deal that will cut the carmaker's pension obligations by a full $26 billion, GM has quietly turned to Prudential Financial (PRU:NYSE) to provide a group annuity. After a one-time payment (using the cash that taxpayers stuffed into its coffers), GM will wipe its hands of the costly monthly pension obligations. Now Prudential will cut the checks.
It's the ultimate form of pulling a rabbit from a hat.
To prove that this move is more political than financial, I offer one fact: The annuity will end up costing GM a whopping $3 billion more than it will save over the life of the pensions.
In other words.... the move doesn't make fiscal sense. It wastes a huge sum of money (taxpayer money, of course).
But that's what happens when Washington has hold of the puppet strings. We get politics, not business sense.
Mark my word. GM shareholders will get a "surprise" earnings bump in August and then another right in time to kick off the big election in November.
It's sleazy, deceptive politics... but it's predictably profitable.
From the Inside,
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