by Jack
It used to be said, “So goes GM, so goes the nation.” Let’s hope that isn’t true anymore because GM stock closed today at a 20 year low… would you believe a share of GM is worth only $13.79? Back in 2000 it was $94 a share. I can remember GM trading around $50 a share in 1964. If you adjust the stock price for inflation from say 1964 that means GM is really worth about $2.65. Thats a huge fall no matter how you look at …
it. Ford is worse off; their stock was $5.81 at the close today. In 1999 it was over $37 a share.
My, how the mighty have fallen, eh?
If you had invested in the broader market, say the NASDAQ composite market eight years ago…your investment would now yield minus 50%??? Hmmm…so much the long term buy and hold theory.
Looking at the relatively short term, the DOW has lost about 1200 points since January. It’s dropped over 2400 points from its high in the last 12 months until now when it closed at 11,842 and that is significant. This is a major correction if not signs of slumping economy.
Lets see how our financial institutions are doing! That is always a good litmus test for the health of an economy right? Wachovia Savings & Loan trades on the NYSE and it’s typically in the mid $50’s, a real steady Eddie sort of stock that is until recently and it’s currently priced at $17.43 on the big board. Washington Mutual (WaMu) was right up there too and it down to a piddly $6.37 per share.
Our local mainstay is Bank of America, dare we even look after what has happened to WaMu? We dare…
Bank of America has spent the recent years trading very steady above the $40 mark and now…well, uh, get ready…its down to $27 on today’s close.
$27 for a quality bank stock and that brings its Price to Earnings ratio down to a low of 11.87. That is a very low P/E for Bank of America! The drop in share price has pushed the dividend up over 14%. That’s hard to imagine! However, B of A has lost 27% of its share value in the last 60 days, so if you think this is the time to buy, you better think real hard. And don’t go chasing the fat dividend. B of A will probably cut its dividend soon, least thats my guess. 14% is too simply too high to last and it’s only 14% because the stock has been tanking unusually quick.
As long as I am guessing here, I’ll say B of A stock will hit probably the high teens before it’s over and then it will enter into a long flat period of modest recovery.
If this happens to good ol B of A then expect WaMu to be sub- $5 soon, a dangerous place to be, where mergers, buyouts and takeovers happen and credit ratings drop. Citigroup will fare worse than BAC, in my ever humble opinion. Citi (C) is just too heavily leveraged with debt that is akin to extortion thanks to Arab money lenders that have replaced the neighborhood loan sharks.
If you think the dividend for B of A is out of whack, check this out….(C) is yielding a 25% dividend and thats just crazy. You know that will be adjusted down! (C) has lost over 22% of it’s stock value in the last 60 days and a whopping 47% since last year! Look, I’m a bargain hunter, but believe me this stock won’t be a bargain if they file Chapter 11 and I would be very careful about buying bargain bank stocks now. It’s going to be touch and go for banks through 2008. They are still dealing with the housing implosion and now with speculators driving up crude oil price that is really damaging our economy, it could be the last nail in the coffin for some big banks and S&L’s. But, don’t just take my word for it, due your research and consult your broker.
This is all just my observations based on four decades of stock trading. However, I did warn you 6 months ago that we would see 11,000 on the DOW before we saw 14,000 and we’re there now.