- - Sunday, May 25, 2014


Gathering to honor our fighting forces and their families, we may not dwell much this Memorial Day on General Motors‘ humbled circumstances or fear what these portend for America’s future.

Yet, while marching bands play and tables groan under plentiful meals, warning flags do fly — those who own GM common shares and those whose investments are concentrated in U.S. dollar-denominated securities have much to fear.

There are three signs worth noticing. First, as of Friday, GM closed at $33.63 per common share, a price that offers investors a 3.57 percent dividend yield, assuming the company can continue paying 30 cents per quarter despite strengthening headwinds.

This relatively high dividend yield might suggest to bargain hunters that GM common shares are priced attractively. Yields on Dow-Jones Industrial companies were significantly lower at 2.21 percent, while yields on the much larger group of companies in the S&P 500 were lower still at 1.97 percent.

On the other hand, when dividend yields soar, this often means that sophisticated investors doubt management will be able to keep payouts intact. Are there justifiable grounds for concern?

SEE ALSO: Government fines GM maximum $35M in safety case

The second indicator, even more alarming, is the recent drop in U.S. dollar interest rates, brought on in part by weakening conditions in Europe. Yields on widely traded 10-year U.S. Treasury Notes are dropping to levels well under inflation in food and energy prices.

Low benchmark interest rates and government support were boons for capital-intensive manufacturers such as GM. Yet In the historically unusual period starting in 2009, GM has not been able to boost sales to end-use customers back above peak levels. Should signs of inflation spread, the Fed must eventually defend the value of our currency by raising dollar interest rates — really bad news for GM.

The third danger sign is more qualitative in nature — legislators, regulators and the media are taking a much closer look at the timeline involving the federal government’s purported “rescue” of, and subsequent exit from, GM.

Was it wise to tear up the rule book?

The debate over intervening to save GM was as fierce as the 2008 campaign — but it was settled as decisively by July 10, 2009, when New GM emerged in record time.

With narrow questions now swirling around what management knew concerning GM product liability exposures going back years, a process has started that could end up changing public perception about the efficacy of the rescue, perhaps dramatically.

Those leading the turnaround were quick to note they did not know about the newly revealed extent of product liabilities in 2009. Yet, when did stewards of the investment in GM learn of these liabilities and why did the federal government rush to exit at a loss starting in 2010, extolling the promise of New GM all the way through 2013?

Did Americans truly benefit in rescuing GM?

The latest insider account by former Treasury Secretary Timothy Geithner has earned a rocky reception for arguments that extraordinary efforts he led, including GM, actually worked.

The truth is that too many analyses rely upon opaque foundations with key facts and numbers kept from public view. Moreover, it is still too soon to know whether precedents set by government intervention going as far back as 2007, when the crisis first bit, will help or hurt this country on the global marketplace.

Statistics tell us that for all the hard work trimming back GM, American industry still operates now at levels well below rated capacity, meaning that more tough cuts await us in the private sector, even as the public sector stands immune.

We are a resilient nation, free thanks to those we honor now.

Still, we must not be complacent — we cannot remain a great nation simply pretending to be great and we should not accept success stories about GM or about this country that are not rooted in verified reality.

Credibility, once lost, is never authentically restored.

Charles Ortel serves as managing director of Newport Value Partners (newportvalue.com), which provides economic research to executives and to investment firms.

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