Dead stock rallying

July 9, 2009

General Motors is about to exit bankruptcy, perhaps as soon as today, selling most of its assets to a “New GM,” with the U.S. government in the driver’s seat. The legal obstacles have all been cleared. There is no hope of the shares of the old GM being worth anything more than the paper they are printed on.

Today, the stock is rallying, up 14 percent in late morning trading. That trading, as it is for shares of other companies in bankruptcy, is on the pink sheets, which is a wild west frontier town for stock investors.

After G.M. filed for Chapter 11 bankruptcy in late May, its stock continued to trade above $1 even as a number of market commentators pointed out how buying the shares defied reason. On July 1, even General Motors felt compelled to issue a statement, reminding investors “of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios.”

Investors can certainly be irrational, but this is madness. The stock is now just under $1, trading at around 95 cents. One can cite the “greater fool” theory, that there will be always someone willing to pay a few pennies more for something that is worthless. It could also be nostalgia for what was once one of the most widely held of the American blue-chip industrials. Or perhaps all these stock certificates will find their way on eBay, along with the shares of busted railroad companies and gold mines.

2 comments

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I have a little GM stock that I bought *before* their bankruptcy, before it started trading on the pink sheets as GMGMQ. I wish I could get a stock cerficate for it as the article indicates, but how can this be done? Looks like the laws regarding certificates have changed recently and my transfer agent won’t issue certificates, not even if I pay them to do so.

Posted by Mike M | Report as abusive

All the talk of how crazy it is to buy GM stock, guess who the number one stock holder is as of today? US TAXPAYER. Our Treasruy, and I am not sure they even have the rights to do it, has bought 60@ of GM. We Americans have been forced to be a part of this illegal, foolish folly. We will loose billions and billions again. A bad day for America.

Posted by Barbara Knowich | Report as abusive