How crazy the worldwide stock markets have become and how little effects the Trillion dollar packages, speeches and appeals of politicians had on the casino players could one more time be seen today in Germany.
Stocks of one of the worlds largest car makers, VW, rose more than 300 % with intraday peaks even higher – yes we mean it – more than three hundred percent. And some of the in-the-money call options have seen their prices increase of more than 27,000% (twenty seven thousand percent).
While car makers around the world tiptoeing along bankruptcy and demand forecasts for the next year(s) are at best catastrophic for some of them – BMW today stopped production for a few days in some of its factories and Daimler today announced that they will stop production for a few weeks later this year- the outlook for VW is anything but peachy as well.
It’s not fundamentals that are behind these price jumps, it’s plain speculation, the same casino plays like the last years that are not only manipulating the stock prices of one of Germany’s largest corporation but are changing the course of one of the worlds most important market indices.
Stocks of car makers around the world have seen enormous volatility during the last days – we recently reported on GM that had to endure sharp drops and rises up to almost 50% but what happened today with VW is even more extreme.
Since a few weeks VW has seen its stock price going wild cavorting around crazily and often bucketing the overall market trend. We spoken to a few insiders and they all told us about 15-20 days ago that there is massive speculation going on and it might blow in one or the other direction. That was confirmed today with sources going public that there were short sales going on totaling to more than 15% of VW’s market capitalization. With the size of VW as one of the heaviest stocks in the German market that’s billion over billions speculating on a falling stock price (without actually owning the stock).
Now VW besides looking much better fundamentally than many other car makers has some hidden extras when looking at its stock holder structure. There is the lex VW currently challenged by Porsche at the European Courts that blocks outsiders from gaining a controlling stake in VW. One of the German states – Lower Saxony therefore holds 20.2% of VW.
Then exclusive, but small German car maker Porsche and the families owning it over the last months has acquired around 40% of VW’s capital. And over the weekend they announced that Porsche is aiming for a controlling stake of more than 80% if courts will allow and it is further to its already large stake in VW controlling another 35% of capital by call options bringing the total of Porsche’s engagement in VW to around 75%.
Now simple arithmetic – 75% + 20.2% – will tell you that some guys now got a serious problem. With only around 5% of free capital available you have a short squeeze at a dimension rarely seen before.
But now comes the interesting part: Porsche with a market capitalization of around EUR 8 Billion itself made a windfall profit at the closing price of EUR 520 of more than EUR 30 Billion (at peak almost 40 billion) if it would only increase its stake to more than 50% and execute the other options of about 25% of VW’s capital. And some analysts today even published price targets for VW of more than EUR 900 – completely crazy – take away their crystal balls and ban them from further supporting this casino speculation.
Basically Porsche – during the last 24 hours by profiteering from this speculative bubble surrounding VW – has made almost four times its company value – or four times the value that all the engineers, workers and managers of the company have created during the last decades.
But we are looking forward to learn who will be loosing these EUR 40 billion that Porsche might get as an unexpected profit. It could very well be some of the banks just being bailed-out with trillions of tax payer money.
And then it will be the engineers, workers and managers of Porsche having to pay for than but not only them – all taxpayers and many of those who are too poor to pay taxes. It will be another blow to the economy as a whole and a slap in the face of many of the politicians who already have started celebrating themselves as the new heroes and saviors of the financial industry. And in Germany with a much stronger car manufacturing sector then the U.S. estimates are already circulated that at least every 10th workplace in that industry will soon be lost.
By-the-way without the speculation in VW the leading German stock market index would have not shown a small plus today, it would have lost around 9%. So much on successful rescuing and bailing out.
How about taking some real action: Stop all short / long sales at least the naked ones, stop trading options and other derivatives if one of the parties is not owning the underlying assets, regulate the currency and carry trade to stabilize the tumbling emerging markets countries, support the housing market, start a large scale economic stimulus program immediately – green energy – less oil dependency might be some key words for that – recreate the infrastructures, invest in the people & their well being (health & education). Then substantial and sustainable change might be created that will help to balance out some of the worst effects of this crisis created by wildest casino betting and speculation and the loss of all business ethics by some bad apples.
Update: 28-Oct-2008 – 09:40 UTC
The VW stock is continuing its sky rocketing rise and has already seen prices above EUR 1,000 this morning. It looks like Porsche has the right to settle its call options against cash with the banks that might have emitted those.
One thing becomes clearer and clearer. The announcement of Porsche that they are now controlling around 75% of VW only benefited the owner families / Porsche Holding. The part that they will provide sufficient time for the casino betters to cover their positions sounds like utter mockery. At the current stock price Porsche would make at least 6-8 times its own market capitalization as profit.
The other big question is why the volume in VW is still continuing to be exceptionally high. Are the same shares changing hands like on a Merry-go-round? Or is Porsche quietly selling into this overheated market and the banks that emitted the call options have to take up the stocks at any price to close their positions. The same banks that have just received billions in so-called bail-out funds or crisis support by the ECB / FED ?
Like at the casino it looks like Porsche is breaking the bank
WARNING: This post is not a recommendation to buy, sell or hold any financial instrument or should be considered in any other way as financial advise.
- GM: A look into the abyss
- Germany: Bank Robbers ante portas
- Germany: How to burn 300 Million of Taxpayer’s money in a second
- Humor: The true story behind the U.S. 700 Billion Bail-out plan
Today was a bad day at stock exchanges all around the world and it was potentially the worst day in stock market history for General Motors.
Already down about 80% from its trading range around USD 40 per share 12 months ago, the share price of the Detroit car maker today was shredded another 30% to around USD 4.7. The report from JD Powers published today that is expecting an “outright collapse” for the global auto industry in 2009 certainly did not help. And for that the writing was already on the wall when GM stopped production in some of its factories in Europe earlier this week (Today even BMW has announces a short production stop with one of his factories in the next weeks).
Let’s put these figures into perspective:
The last time GM was traded around USD 4.7 a share was in the 1950s when an average car sold for …
There was a lot of hectic movement with governments around the world the last weeks to confine the disasters from betting / wild casino speculation within financial institutions. Approaches and road maps laid out (if any) are pointing to different directions even in the key G7 developed countries.
The U.S. – for example – first wanted to give absolute powers to the executive branch and the government – a move widely criticized and changed by the U.S. Congress in the debates following the first bailout plan.
France and the UK have taken another road and bailing out their banks by providing funds only against a collateral – meaning they are de-facto nationalizes key players in their finance industries. France even went a step further with President Sarkozy calling for the creation of national industry funds to stop the fire sales of key industrial players to overseas investors – an interesting step that found much applause with the European Parliament. If you think that further it…
I guess everybody in the banking world around the globe has heard about the Lehman bankruptcy latest this Monday morning, everybody besides Germany’s largest government owned bank – KfW.
In an attempt to win the Darwin award for banks or by taking the name of the bank to literally (KfW – translated: Bank for Reconstruction), they transferred 300 Million Euros to already bankrupt Lehman during Monday. At the same time their government colleagues were closing the German Lehman subsidiary…
Much has been said this week about the so-called USD 700 Billion bail-out plan for banks by the current U.S. administration and finally the right question was asked in congress yesterday – How did you arrive at that USD 700 billion number…