I was right about GM story not being a big deal

By iamned - Last updated: Tuesday, March 31, 2009 - Save & Share - 12 Comments

yesterday I tried to submit this article to seeking alpha but not surprisingly it was rejected. When It was written the dow was down 300 points. Now it’s up 150 points at only 8:30AM pacific since then because I’m almost always right about economics and stocks. When I say GM story not a big deal, I’m right.

Here is the article:

Title: The Failure of GM Will Have Little Impact on the EconomyAuthor: Cetin Hakimoglu
Positions: Google, Mastercard, Potash Corporation

I turned on the TV at around 3:00 AM on Monday morning to see that futures had tanked. Apparently the General Motors CEO Rick Wagner was forced to step down by the Obama administration, and in addition new details regarding possible bankruptcy in the near term time frame were revealed. However, I knew immediately that this sell off was indeed unjustified because the significance of GM’s contribution to the United State’s economy is being blown out of proportion.

With the Dow down almost 300 points in midday trading, I ask why are people panicking? Why is this this General Motors story so important? Why should a company with a market cap of only a couple billion dollars drag the entire multi trillion dollar stock market down three percent? None of this makes any sense. The US economy is like a painting, and GM represents just a brushstroke.

GM has about 250,000 US employees. In the worst case scenario, If GM were to close completely these people would be unemployed, which seems bad on the surface, until you put the number into perspective. The United States workforce is over 150 million strong, so if all these workers were fired, the total unemployment rate of the United States would rise just a fraction of a percent. GM’s market cap is only a couple billion, so it’s contribution to the DOW and S&P 500 is negligible. Many of these workers will look for work, so it’s not like the unemployment is permanent.

Yes, I know a lot readers from the leftish side of the political spectrum, as well as fringe Ron Paul supporters from the paleoconservative movement like to reminisce of a bygone era when a highschool graduate could make a good living with a unionized manufacutring job, but those days are long gone. The era of American factory jobs and unions are coming to an end.
In the past thirty years a seismic transition from an economy based on the production of manufactured goods to one of production of intellectual (Internet services, software, movies ) and service (fast food, health care, landscaper) goods has occurred. The growth and strength of the US economy isn’t in unionized, entitlement based jobs, but in the meritocracy embodied by the Internet, service, and finance sectors where lifetime employment and pensions subsidized at the expense of the company aren’t a guarantee. But in exchange, companies like Google, Apple, Amazon.com, Visa, Twitter, Wallmart, Myspace, Facebook are created. These are just some examples of companies that contribute greatly to the US economy, while spurring further innovation, as opposed to companies like GM that hold America back.

In conclusion, I would interpret Monday’s sell off as a prime buying opportunity in what has been an exceptional, three week bull market. People are panicking over what will amount to almost nothing should the worse case scenario occur regarding GM. The failure of GM may seem like a big deal according to the headlines, but in actually it isn’t.

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12 Responses to “I was right about GM story not being a big deal”

Comment from arth
Time April 3, 2009 at 1:37 am

myspace twitter facebook don’t contribute squat to the US economy.

even GM in its retarded state has revenue of 30.7B (cost of revenue of 33B ) vs AAPL 10.1B
AAPL has market cap of 100B to show for its growth vs. GMs continuing collapse 1.28B cap

GM has more employees, more suppliers, dealers … a long chain of collateral damage. It will have quite an effect I think.

Comment from Jimbo
Time April 4, 2009 at 6:18 am

Ned,

I read your website occasionally as a source of amusement and new perspectives. It’s interesting that you always claim to be right, yet all I have to do is go read your old posts regarding the presidential election to see that your Magic 8-ball is just as unreliable as mine.

Some of your ideas are correct, but I think you are grossly underestimating the importance of GM to the United States. GM is more than a company. It is a symbol of American power. People need symbols. You should know that. Nobody rallies behind Facebook or Wal-Mart.

Jimbo

Comment from stats79
Time April 19, 2009 at 6:45 pm

Ned has never been right about anything. This guy is a hoot. I love looking back at his past posts to see what else he got wrong. Even a broken clock is right twice a day. Ned is worse than a broken clock. Gawd, you’re good for a few laughs Ned. Keep up the good work.

Comment from Michael
Time April 20, 2009 at 10:36 pm

I am convinced that this site is a joke, no one can possibly be this blind to what is in front of him and still walk around and converse with people is any manner.

Comment from ned (administrator)
Time April 24, 2009 at 12:09 am

Michael :
I am convinced that this site is a joke, no one can possibly be this blind to what is in front of him and still walk around and converse with people is any manner.

I’m the third wisest human in the world. One day you’ll be enlightened, too.

Comment from Art Vandele
Time April 24, 2009 at 12:24 am

“I’m the third wisest human in the world. One day you’ll be enlightened, too.”

Who are the two guys who are smarter than you?

Comment from People Against Cetin (PAC)
Time April 28, 2009 at 9:12 pm

Cetin is the biggest douchebag ever to walk the Earth, a lonely and obese troll.

He thrives off making bold but meaningless statements for the purpose of getting a human response.

Really pathetic.

Comment from Jeff
Time April 30, 2009 at 9:55 pm

He’s wrong in this very article too. He’s using selective statistics and doesn’t look into the actual reality of the situation.

Sure GM has 250,000 of its own employee’s, but the number of indirect jobs is closer to 3,000,000. How do you think GM gets its parts? It doesn’t make tires, rims, upholstery, etc.

3,000,000 people out of a job is a bid deal, but I guess “you can’t see it” from California so it isn’t real right?

How do I join PAC.

Comment from Ali
Time May 13, 2009 at 8:13 pm

Art Vandele :
“I’m the third wisest human in the world. One day you’ll be enlightened, too.”
Who are the two guys who are smarter than you?

His mom and his dog, no doubt.

Comment from arabella
Time May 18, 2009 at 1:53 pm

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Comment from arabella
Time May 18, 2009 at 1:54 pm

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Comment from arabella
Time May 18, 2009 at 3:18 pm

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