Friday, April 24, 2009


Ford Motor Co. had an earnings "beat" (surprise!). In Bloomberg's Ford Loss Is Smaller Than Estimates as Cash Use Drops (Update2), the following quote is presented:

Excluding items the second-largest U.S. automaker considers one-time costs, the loss of $1.8 billion, or 75 cents a share, beat the $1.24 average of 11 analyst estimates compiled by Bloomberg.

“This is a fantastic performance,” John Wolkonowicz, an IHS Global Insight analyst in Lexington, Massachusetts, said today. “They’re burning cash at a much lower rate. They’re going to come out of this OK. I now believe they won’t need a government handout.”

What Bloomberg goes on to report (below-the-fold, as it were) is:

Ford’s U.S. vehicle sales fell 43 percent, contributing to its largest first-quarter loss since 1992.
The net loss was $1.4 billion, or 60 cents a share, compared with net income of $70 million, or 3 cents, a year earlier, the company said.

Revenue fell to $24.8 billion from $39.2 billion, excluding special items, as Ford slashed North American production by half. The average analyst estimate was for $23.2 billion.

The automaker has been able to forgo U.S. aid because it borrowed $23 billion in 2006 before credit markets froze. As collateral for that financing, which Mulally called “the world’s largest home equity loan,” Ford put up all major assets, including its headquarters and blue oval logo.

Ford lost a record $14.7 billion in 2008, and analysts expect the company to be unprofitable this year and next. Mulally has said he expects to break even by 2011.

Here are some of Ford's financials as of 12/31/08 as reported to the SEC (per Yahoo's Finance section):

Net tangible assets: Negative $19 B
Net working capital: Negative $31 B

Ford is going to continue to lose money year after year. Some "performance".

On second thought, it is a performance: the stock market is now more of an act than usual. Much of it is a bad act. Perhaps Mr. Mulally is a better actor than Cerberus and the unending stream of guys whose names all kind of sound the same who have run GM into the ground decade after decade.

Re the stock market as a whole, Louise Yamada continues to hold to her bearish technical view as she recently has been pointing out that the averages are continuing the trend of finding resistance at progressively lower levels. Resistance now is around Dow 8000, down from 10,000 and then 9000.

Unfortunately supporting this bearish view is the alacrity with which insiders have jumped to the sell side, as Bloomberg reports in Insider Selling Jumps to Highest Level Since ‘07 as Stocks Gain":

Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market. . .

Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 mostly institutional clients.

That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992 . . .

Obviously the data only covers 2/3 of April, but considering that the Dow has almost tripled since the 1992 comparison month, we are looking at a huge diminution in insider buying over time.

As Nassim Taleb keeps reminding us, the past is a very imperfect predictor of the future, but I for one find the unchanging emphasis and dubious enthusiasm about beating (managed, lowered and poor) analysts' estimates; government-created bank "earnings"; and the refusal of many of the most eminent pre-bear market bears such as Louise Yamada, Nouriel Roubini and Meredith Whitney to change their tune to be important considerations. The Great Depression had shoots of green as well, with ECRI's long leading indicators showing largely positive year on year comparisons for about an entire year between 1930 and 1931.

Finally for now, please consider Mish's Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis. This blog has used/reported on the term "looting" for what has happened to the use of taxpayer funds to support stockholders and bondholders of financial companies.

EBR continues to believe that there are elements of both the Great Crash of 1929-32 and Watergate/S&L looting crisis extant. Anyone perhaps outside of Barack Obama and other insiders of the highest levels who believes he or she has a good read on how the future will unfold, including pricing of almost any asset, is in my humble opinion overly confident.

Copyritght (C) Long Lake LLC 2009

1 comment:

  1. Good analysis on Ford. I've been astonished all day long that losing $1.8B leads to a double-digit percentage increase in stock price. Do the F bulls know or care about debt service?

    Many of the same people must be buying GE with its $5.6B in tangible equity and 118x leverage although compared to F, GE's balance sheet looks pristine.

    By these standards, XOM should be $6,686/share.