The news this morning that Kirk Kekorian wants to up his stake in GM, has very bullish implications for several reasons.
First, Kirk Kekorian knows what he’s doing and he could really help the bumbling Board and management at GM. If GM would cut the dividend and begin negotiations with the UWA on healthcare cost containment, it would lift a huge burden off the shoulders of GM and the overall market. As the incomparable Brian Reynolds has been saying for some time over at Minyanville, a GM bond downgrade would probably overwhelm the junk market because of the sheer size of GM’s debt. That would cut off financing for numerous other companies and have negative repercussions through the financial markets.
Second, sentiment in the markets has turned very negative. The press and media have finally caught on to the fact that the economy is slowing. That has rippled into the sentiment data. The 21 day moving average has now hit levels not seen since the middle of 2004. It’s also up to levels that typically mark negative sentiment extremes.
So we have negative sentiment combined with some good news on a serious concern for the overall market. That’s a recipe for a rally – the question now will be whether it can stick in the face of a Fed who can’t even be trusted to write a paragraph correctly, let alone set US interest rate policy.