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-- Posted Monday, 27 April 2009 | Digg This Article | | Source: GoldSeek.com

Imagine you are a foreign group interested in establishing a large position in the powerful US market in these troubled times.

Would the US government like to finance your entry to the market, give you a large stake in a leading company, and also the option to buy it later if the government-financed rescue proved successful, and if not allow you to walk away having risked nothing more than your reputation and a few outdated designs for small cars?

Sorry that gave it away: we are talking about the ‘offer’ Fiat is making for Chrysler which otherwise faces imminent bankruptcy. It is hard to see even the naive and relatively inexperienced Obama administration falling for this one.

GM

Over at General Motors the bureaucrats are also preparing for Chapter 11 bankruptcy proceedings, though they have the luxury of a slightly longer timetable that closes at the end of next month. So it looks like Chrysler will beat GM to become the first of the Big Three automakers into bankruptcy protection.

Perhaps that is the best way forward for these two auto giants. Every other approach to keeping them alive seems to have failed so Chapter 11 is almost certainly where they will end up.

But what does this mean for optimism about green shoots of economic recovery currently doing the rounds of US dining tables? Letting two of the countries biggest industrial concerns go is no small undertaking.

Companies in Chapter 11 are protected from their creditors, that means if you are owed money by them you have a cash flow problem. And if you are a supplier then you will delay payments to your suppliers, and how do you pay your staff?

Lehman lesson

It is a similar domino effect to the one seen in the Lehman Brothers bankruptcy last autumn, except that arguably the impact on the real economy will be more quickly visible in massive lay-offs.

There will be, of course, an invisible further hemorrhaging of the banking system as it absorbs yet another round of bad debts from the auto giants and their extended family. It is impossible to quantify but surely we are talking again about telephone numbers.

With a US auto crash coming it would be wise for investors to get off the road and take profits from what has been an exceptionally strong rally grounded in nothing more than hot-air about a recovery that is still quite a long way off. And investors would be wise to start switching from bonds to precious metals as a safe haven because bonds are government debt and the government is borrowing too much.

-- Posted Monday, 27 April 2009 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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