[quote=VotedforKerry]

LOL, I'm not that angry.  But damn, can't these brokers add.  I'm not talking about evaluating just GMAC bonds.  You can use this rationale with any investment.  Did anyone else besides me take finance courses in college?

[/quote]

I did.  You also need to consider the time value of money and opportunity cost as well.

[quote=joedabrkr][quote=VotedforKerry]

LOL, I'm not that angry.  But damn, can't these brokers add.  I'm not talking about evaluating just GMAC bonds.  You can use this rationale with any investment.  Did anyone else besides me take finance courses in college?

[/quote]

I did.  You also need to consider the time value of money and opportunity cost as well.

[/quote]

Not to mention the fact that the clients dont realize this.  They see the gain/loss report that shows their down 25%.  Then they come griping and worrying about it.

[quote=iconsult100][quote=joedabrkr][quote=VotedforKerry]

LOL, I'm not that angry.  But damn, can't these brokers add.  I'm not talking about evaluating just GMAC bonds.  You can use this rationale with any investment.  Did anyone else besides me take finance courses in college?

[/quote]

I did.  You also need to consider the time value of money and opportunity cost as well.

[/quote]

Not to mention the fact that the clients dont realize this.  They see the gain/loss report that shows their down 25%.  Then they come griping and worrying about it.

[/quote]

true dat homey!

Sorry people, but I'm looking at this GM/GMAC debacle from a whole other perspective than numbers. To be sure, GMAC is financially healthy, but it's attached to a financially unhealthy GM which posesses an underfunded pension plan. Just too many variables here, to suit mine or my clients' tastes.

The PBGC has suggested that it could suck GMAC dry, to fund the pension. What happens to the GMAC bonds, then? What if GM is prevented from selling GMAC, by the unions, pensioners, government, (fill-in the blank)? How would GM's bankruptcy affect GMAC? What would GM creditors do if GM stopped the interest payments on their bonds, but continued to pay interest on GMAC bonds? And on, and on...

Investing is hard enough and is fraught with peril, even during the best of times. But when approached with a situation like this, covered with big, wide gaping holes of uncertainty, my clients and I will pass. 

VotedforKerry:

"Sell it if you feel unconfortable but shut up about the losses."

Was never in it and neither were my clients. I won't shut up about the losses because some who read these boards need to be aware of the risks involved in buying bonds of companies facing more than the usual amount of uncertainty. This is a unique situation and there are no clear answers. I could be right, I could be wrong. But that kind of speculation is meant more for stocks, than bonds.

"The longer you hold if they can continue to pay the lower overall cost of the investment." 

But your client depended on the interest from the GMAC bond to live on and NOT as a return of principal. A bond is an investment, but it's not supposed to be like a stock investment. It's supposed to be safer than a stock.

[quote=doberman]

The PBGC has suggested that it could suck GMAC dry, to fund the pension.

[/quote]

When did they say that? You realize that GMAC has a different credit rating than GM for a reason, right? They don't have the same liabilities.

[quote=doberman]

 What if GM is prevented from selling GMAC, by the unions, pensioners, government, (fill-in the blank)?

[/quote]

On what grounds? If anything selling GMAC is in the interest of the very groups you mentioned because it would be a massive cash infusion.

[quote=doberman]

 What would GM creditors do if GM stopped the interest payments on their bonds, but continued to pay interest on GMAC bonds?

[/quote]

They'd wish they had lent money to GMAC and not GM so that they could still be getting their payments.

[quote=doberman]

But when approached with a situation like this, covered with big, wide gaping holes of uncertainty, my clients and I will pass. 

[/quote]

That's fine, if you and your clients don't hold any GMAC. OTOH, if they do selling now, and on a faulty understanding of the finincial structure, would be a bad idea, imho.

To mikebutler222;

A Wall Street Journal article about GM stated that the PBGC threatened to use the cash in GMAC to shore-up GM's underfunded pension plan. The article appeared several weeks ago. The PBGC was responding to a question about the possibility of GM selling GMAC, keeping the cash from the sale and using it for other purposes, going bankrupt, then dumping the underfunded pension onto the PBGC.

I agree that selling GMAC would be a "massive cash infusion". But cash infusion for who? The company, the pension plan, the unions? What about creditors and bondholders of GM? How many groups have to give the final ok for the sale of GMAC? Keep in mind, not only must there be an agreement as to the final sale price, but also as to how the pie gets divided up. Too many groups with their hands out, in my opinion.

If I'm a major GM bondholder and GM stops interest payments, but GMAC continues interest payments, I'm pursuing a lawsuit. Impossible to consider? Remember, GMAC is owned by GM.

Look, all I'm saying is, if your clients bought into GM or GMAC on a purely speculative basis, then nothing has changed. However, if their "safe" money is invested in GM or GMAC, then things have changed and you need to tell them to sell out and buy something safer.

If you think GMAC is safe, then tell me how this whole thing is going to pan out. So far, no one knows, not even the experts. "Safe" money investments require (at the very least) some certainty of the outcome and I don't see it here.

[quote=doberman]

I agree that selling GMAC would be a "massive cash infusion". But cash infusion for who? The company, the pension plan, the unions?

[/quote]

Obviously to the company, which would make the PBGC and the unions happy.

[quote=doberman]

How many groups have to give the final ok for the sale of GMAC?

[/quote]

None of them but the company.

[quote=doberman]

Keep in mind, not only must there be an agreement as to the final sale price, but also as to how the pie gets divided up. Too many groups with their hands out, in my opinion.

[/quote]

None of the factions you mentioned have a right to get involved in any possible sale UNLESS GM is already in bankruptcy when the sale happens.

[quote=doberman]

If I'm a major GM bondholder and GM stops interest payments, but GMAC continues interest payments, I'm pursuing a lawsuit. Impossible to consider? Remember, GMAC is owned by GM.

[/quote]

You could file, you stand no chance of winning. GMAC does NOT have the responsibility to pay GM debt AND GMAC has loans out that provide their income. You sound really confused on the subject of corporate structure. Again, there's a reason why GMAC and GM have different credit ratings, they have different balance sheets, liabilities and income streams.

[quote=doberman]

However, if their "safe" money is invested in GM or GMAC, then things have changed and you need to tell them to sell out and buy something safer.

[/quote]

Selling out GMAC bonds at this point would amount to nothing but a self-inflected wound based on a misunderstanding of corporate finance.

[quote=doberman]

If you think GMAC is safe, then tell me how this whole thing is going to pan out. So far, no one knows, not even the experts. [/quote]

You mean the experts that give GM and GMAC different credit ratings? They seem to understand the difference. Here's what going to happen. GMAC will be sold or GMAC will survive where it sits now.

Selling GMAC bonds now would be giving your client a 20-25% hicky out of ignorance.

If GMAC bonds are such a great value, why are they selling at such a big discount? Seems to me the Street would recognize the disconnect between the "market price" and its "true value" and bid up the price to correct the "inefficient" pricing. However, the discount has only widened, the past few months.

Market response: The discount reflects the market's uncertainty over the GM situation and how GMAC will ultimately wash out of all this. My point exactly. Safe money is not at home with uncertainty.

If you don't sell-out, then document the h*ll out of your discussions with the client about the risks involved. You'll need your notes for arbitration!

[quote=doberman]

If GMAC bonds are such a great value, why are they selling at such a big discount?

[/quote]

A combination of things. Confusion about the REAL risk faced by GMAC, uncertainty about the future of GM and that fact that the paper had be downgraded.

[quote=doberman]

Seems to me the Street would recognize the disconnect between the "market price" and its "true value" and bid up the price to correct the "inefficient" pricing.

[/quote]

They have. That's why GMAC debt trades better than GM debt and has a higher credit rating.

[quote=doberman]

However, the discount has only widened, the past few months.

[/quote]

I haven't seen a discount widen on the GMAC bonds I own that can't be pinned on simple interest rate changes.

Market response: The discount reflects the market's uncertainty over the GM situation and how GMAC will ultimately wash out of all this.

[quote=doberman]My point exactly. Safe money is not at home with uncertainty.

[/quote]

Find me a corporate bond without some level on uncertainty....

[quote=doberman]

If you don't sell-out, then document the h*ll out of your discussions with the client about the risks involved. You'll need your notes for arbitration!

[/quote]

I disagree. Keep the client informed, and allow them to make an informed decision. If you do recommend seling out, and they do, document the conversation for the arbitration that comes from you selling out a bond at the bottom