You know it's a sickly stock market when its catalyst is an old man who carries his money to the bank in a Brink's truck.
When multibillionaire casino boss Kirk Kerkorian recently offered to bolster his stake in an old beater, General Motors, by 28 million shares at $31 US per share, Wall Street, aching for something to cheer about, threw a party.
GM's flagging shares awakened with a vengeance, shooting up 18 per cent in a single day. Other ailing auto stocks joined the fiesta. The Dow, Standard & Poor's 500, the TSX and even the Nasdaq surged. Yes, the 87-year-old Kerkorian was even able to rouse those listless tech stocks.
The news that Kerkorian, who already owned 22 million shares in GM (TSX/NYSE:GM), would be increasing his stake from 3.8 per cent to nine per cent was regarded by many as the tonic that was needed to boost investor confidence and turn around a listless stock market.
Chalk it up as just another knee-jerk reaction by the markets. If you got caught up in the preposterous hype over Kerkorian and chased GM stock, you got your lunch handed to you a day later.
One brokerage house, Merrill Lynch & Co., even upgraded GM, the struggling automaker, from sell to hold on the Kerkorian offer.
While Tracinda Corp., Kerkorian's Beverly Hills firm, characterized the offer as "passive," speculation ran rampant as to Kerkorian's possible motives.
Was Kerkorian, the majority owner of MGM Mirage casino operations whose net worth is estimated at $8.9 billion, trying to give GM management a wakeup call to get their house in order or just trying to enhance his own stake in the company?
Was Kerkorian up to some hijinks such as greenmail, a ploy where an investor makes a power play by flexing financial muscle in hopes that the company reacts by paying him to go away?
Or was Kerkorian, who 10 years ago partnered with Lee Iacocca in a failed bid for Chrysler before it was acquired by Daimler-Benz, trying to set the table for a takeover bid by some other party?
Some market geniuses even figured it was a value investment with Kerkorian presumably in for the long haul, perhaps planning to sell his shares in 2018 to celebrate his 100th birthday. These are no doubt the same people who still believe that old business adage, "What's good for General Motors is good for America."
But did anybody stop and consider that maybe the market was reading too much into Kerkorian at a time when the market was crying out for something positive? Perhaps this was nothing but a plain, old lousy investment by an investor who just might be past the prime of a career where he used to make a killing flipping airlines and hotels.
Just one day after Kerkorian rocked the market, the auto industry was back in the penalty box. Standard & Poor's downgraded GM's and Ford's credit ratings to junk status at the same time and before long the auto stocks were essentially back to where they were before Kerkorian made his move.
Let's face it. It's going to take more than a sugar daddy such as Kerkorian to fix the auto stocks. In January, Bay Street sage Ross Healy of Strategic Analysis Corp. told the Edge that the auto industry was going to get "massacred.”
So far, Healy's been right on the money. The auto stocks have been getting hammered since then, particularly GM and Ford (NYSE:F). GM's first-quarter loss was $1.1 billion US, its biggest quarterly loss in more than a decade.
Kerkorian or no Kerkorian, betting on the sickly auto industry isn't much different from shooting craps at the tables at Kerkorian's Vegas casino. If you were one of the pawns who got caught chasing GM shares piggyback-style on the false start precipitated by Kerkorian's much ballyhooed pitch, you get the message.
* SUDSY HANGOVER: How many times have we warned you not to mix your drinks?
You'd be hard pressed to find a worse cocktail than the Molson/Coors merger in which stock in Molson Coors Brewing (NYSE:TAP) has recently plummeted from $80 to $62 US on financial results that went over like a warm beer on a hot day. To add insult to hangover, the company followed up news of a $46.5-million US quarterly loss by issuing a correction in which it admitted its results were even worse than that!
* HEAVY HITTERS: There's a relatively new wealth-management firm on the Calgary scene, and it hasn't taken long for the new kid on the block to make its presence felt. Brownstone Asset Management boasts returns of 26 per cent in its first year of operations in 2004 on the strength of major returns on oil and gas holdings such as Centurion Energy (TSX:CUX).
Brownstone is headed by CEO Bob Thompson, formerly a partner and vice-president with Bissett & Associates Investment Management.
Brownstone's team also includes chief investment officer Mario Vachon, a former VP with Phillips, Hager and North Investment Counsel and CFO Wendy Adams, former CEO of Bissett.
"Mario and I were trained in the big shops but we're having a substantially more entertaining time now, being able to participate in some more interesting equities," says Thompson, referring to less-liquid stocks that fall below the radars of the major firms. "If you're running $10 billion or so, you just can't play the smaller companies."
Added Vachon: "Yeah, it's a lot more fun trying to be smart on RentCash (one of the smaller holdings in Brownstone's portfolio with a market cap of $332 million) than trying to be smart on Alcan ($15.3-billion market cap)."
For Vachon's debut on the roster of Pro's 3 Stars, see Page 17.
* SAGE WORDS: "Everybody looks at me and asks if I have a magic ball or a silver bullet. There's no magic. I just look at things, a lot of things."
- Kirk Kerkorian in a rare 1998 interview for the book, Taken For A Ride: How Daimler-Benz Drove Off With Chrysler
HOT STOCK: Call-Net Enterprises
TSX:FON.NV.B $8.90
Up $2.30 (+34.8%) on 14.96 million shares (based on weekly stats through May 13 for Canadian stocks over $1)
Ted Rogers buys phone companies like my wife shops. All day. Shareholders of Call-Net Enterprises, parent company of Sprint Canada, were also shopping all day after the Rogers Communications CEO spent some loose pocket money ($338 million) in a friendly takeover bid that gives the company an edge in market share as it prepares to move into the fixed-line phone service space. Of course, Ted The Spender's still got a ways to go to match last year's $2.9- billion shopping spree in the acquisition market.
COLD: AFT Income Fund
TSX:AFT.UN $2.50
Down $1.16 (-31.5%) on 1 million shares (based on weekly stats through May 13 for Canadian stocks over $1)
The income trust unitholder's worst nightmare came true when AFT announced it was temporarily suspending its monthly cash distributions due to a challenging pulp and paper industry. To trust investors, this is akin to your boss telling you he can't afford to pay you but, what the heck, come to work anyway. If AFT wins cold-stock honours again next week, that would be three weeks in a row, in which case we may just have to retire their jersey.
(Gyle Konotopetz can be reached at gyle@businessedge.ca)
