Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks are off yesterday's record high close this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (^DJI -0.11%) down 0.05% and 0.06%, respectively, at 10:10 a.m. EST. Investors, particularly bank shareholders, are awaiting today's release of the final version of the so-called "Volcker rule," which bans banks from engaging in proprietary trading.
The government yesterday ended one of the ignominious episodes of the credit crisis when it sold the last of its stake in General Motors (GM -0.04%). I use the term "ignominious" not in reference to the government's rescue of the ailing automaker, but to the fact that it took nothing less than the worst economic disaster since the Great Depression to force GM to restructure a business that was fundamentally unsound. Same goes for Chrysler.
On Monday, Washington sold a 2% stake in GM, the last of what had once been a 60% ownership interest. All told, taxpayers lost roughly $10 billion on the $49.5 billion in financial assistance they extended to the automaker. At first glance, that figure looks awful; in fact, a broader cost/benefit analysis suggests the rescue generated a good economic return.
How's that? According to a study published last week by the Center for Automotive Research at the University of Michigan, rescuing GM prevented the loss of 1.2 million jobs in 2009 and saved taxpayers $39.4 billion in increased transfer payments and forgone tax revenue in 2009-2010.
Furthermore, the bailout enabled a necessary restructuring of General Motors, which the company had been unable to implement on its own. GM reduced its production capacity and addressed its exploding health-care liabilities and has emerged as a more competitive, albeit smaller, automaker (there are no points for being big if you aren't consistently profitable).
General Motors shareholders have done well this year, with the stock's 37% rise outperforming the S&P 500. Investors should welcome the government's exit; indeed, as with the banks, it is the first milestone toward reinstituting a dividend. That would attract a new constituency of dividend investors to the stock. At a valuation of 9.3 times next 12 months' earnings-per-share estimate, there's no reason to believe the shares can't appreciate further.
