As its shares jump, GM again tries to warn investors away

General Motors Corp. filed for bankruptcy protection, got kicked off the New York Stock Exchange and out of the Dow Jones industrial average.

And its stock has mostly been rising ever since. In fact, GM has been one of the hottest issues on Wall Street over the last six trading sessions, surging from 61 cents to today’s closing price of $1.59 in the electronic pinksheets.com market -- a gain of 161%.

The rebound spurred GM today to issue a statement reminding investors, yet again, that the stock is virtually certain to be worth nothing when GM completes its reorganization.

From the company:

GM management has noticed a recent elevation in the volume and price of its common stock. While GM does not control the market or its stock price, GM management strongly believes that any recovery for the common stockholders in the Chapter 11 bankruptcy process is highly unlikely, even under the most optimistic of scenarios. Stockholders of a company in Chapter 11 generally receive value only if all claims of the secured and unsecured creditors are fully satisfied.

Why are some people willing to pay $1.59 a share for worthless stock? Because, who knows -- someone else might pay $2 tomorrow!

As I’ve written before, there’s a universe of traders out there who love to play around with big-name stocks that end up in bankruptcy. You can’t explain the action based on any fundamentals. It’s just a minute-to-minute, hour-to-hour trading game.

GM has 610 million shares outstanding. The volume in the stock exceeded 156 million shares on Tuesday alone. So this is more than a few traders’ idea of fun.

We know how this will end. But between now and then, for some gamblers playing GM is better than a trip to Vegas.

(And if there’s anyone out there who believes the stock has real value, please feel free to tell us about it.)

-- Tom Petruno

Comments

[asa]

The US has gone bonkers. Helping companies worth one billion with 80 billion, paying people to get rid of a clunker and sign up for debt on a new one, bankrupt GM buying other bankrupt company, neither on has any money, is nutts. Giving a car company along with our tax money to FIAT,(they are gonna cream the good parts and dump the rest back on taxpayers) Alot of STUPID things going on. Please someone wakeup, we are gonna loose alot of money and be in big trouble. PLEASE!!! Stop this idiot bailout mess now. Oh did I say this is STUPID move by our goverment.

[kenneth kassouf]

Old GM is expected to own 10% of new GM. Could a price of $1.56 a share reflect that 10% value?

[Clint]

I own $1 puts expiring a week from today. Will they be worthless? Why didn't it go to Zero today? I'm so damn confused.