GM RIP, NOT Too Big to Fail

By: PaddyPowerTrader

With the Irish Bank Holiday, it’s a quick one today. Today sees the once-great General Motors humbly applying for Chapter 11 bankruptcy. It must have been a hard weekend as the clock ticked towards the June 1 government deadline to restructure. The company plan to name turnaround executive Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection. GM has already has received about £12.5 billion in government loans and could get nearly £19 billion more to make it through what is expected to be a 60 to 90-day reorganisation in bankruptcy court.

Tensions about North Korea continued to mount, as the country moved it’s most advanced missile to it’s west coast. Many believe that the missile is capable of reaching Alaska from it’s current position. Kim Jong Il is itching for a fight with the US, it seems.

The fresh wave of optimism that’s been driven by a sharp rise in Japanese industrial output, higher oil prices and a stronger UK housing market will be put to the test this week.

Today’s Market Moving Stories

• The Auto sector will undoubtedly be the most talked about today. Apart from the plight of Government Motors (GM), US car group Chrysler has secured court approval to sell most of its assets to a consortium led by Italy’s Fiat.
• Property intelligence firm Hometrack’s monthly price index held steady for the first time in 20 months in May in a further sign that the housing market might be stabilising. Like most analysts, I’m still of the opinion that we’ll continue to see a drop until at least the end of the current year.
• The S&P will be interesting to watch today, as it is about to run into a bit of technical resistance. Volume has been declining, and the market’s close on Friday at 919 was near the 200-day moving average of 928. The “Less bad” data that has been driving the recovery in equities and indices will need to become “Good data” pretty soon to keep the momentum of recent times.
• The recent surge in oil prices may not be good for the average American. With the unemployment rate stuck at 9%, the rise of the last 30 days will probably cut Joe the Plumber’s spending even more.
• The theme of the last month has been commodities. The group is headed for it’s best month since 1974. Given the meteoric rise we saw last year, that is saying something. With the way markets seem to reacting to news releases these days - turning on a six-pence on any old data-point - we could be in for a very volatile month on the commdities front.

Geithner Musters All Available Charm For Chinese Trip
Tim Geithner is on a mission in the East. Given that he has to try to convince Beijing that the US and the Obama administration will control it’s borrowing, it is neither an enviable or easy proposition. Wen Jiabao, the Chinese Premier, called for the US to “guarantee the safety of China’s assets”. China is the largest foreign holder of U.S. government debt, which so far this year has handed investors the worst loss since at least 1977 on forecasts for ballooning federal budget deficits.

Geithner needs to show how the U.S. can prevent the value of China’s investment from being eroded by a weaker dollar or by the inflation that might be stoked by the stimulus money being pumped into the U.S. economy. Geithner recently said “We believe in a strong dollar. A strong dollar is in the U.S. interest.” He will need to call on all his charm and guile to convince China that the US can reign in the biggest deficit in their history.

And Finally…
Auto Industry workers will have to fight to keep their jobs

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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