Jim (cont'd):     

Okay... just promise me one thing... that she won't touch the common stock of General Motors (GM) or Ford (F)... Sell, sell, sell...

And, remember, Ford isn't even taking the money this time around... Yeah, I just said it... don't touch the common stock... which is what you reach for if you're watching this show typically... Owning the common stock, when it comes to these two companies, is a fool's game...

People want to believe that these could be like Citigroup, where treasury preserved the value of the common stock, putting an end to the relentless punishing of bank shareholders by the government...

But this is Congress... different from treasury, that likes to give money away to the banks... Remember, treasury is kind of like in bed with the banks... this is different... this is Congress... they are less likely to let you win... and more likely to let the government win...

Alright, you look at Ford and you see a three dollar lottery ticket... and you look at GM and you see a four dollar lottery ticket...

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Now, I know that a lot of you want to play the bailout, but the common stock is way too risky... If Ford or GM does eventually go bankrupt, then the common stock is the first thing that they wipe the floor with...

General Motors has $45 billion in debt... Ford has $32 billion in debt... You have to take that into account when you look at the supposedly cheap share prices... These are not cheap!... You don't want to own the common stock when the bond boys take over... which, as we've heard, is a clear possibility at both Ford and GM...

If either of these companies go bankrupt, and get liquidated, then about the only thing your common stock certificates will be good for is wallpaper... and notice what a diplomat I've become... I did not say toilet paper...

But I'm not saying you can't play the bailout, even though the common stock is a sell, sell, sell... whether we're talking about Ford or GM... Even if the common stock manages to get rescued in the bailout... even if it somehow manages to thrive for both companies... there are still better ways to go about playing the bailout...

Let me tell you how I think you should play the auto bailout for non-dummies...

This is using a strategy that I got from my colleague, Dave Pelletier... You want to swap out of the common, and swap into the preferred stock of both of these companies... A lot of people don't know what that is and don't know how to look that up... we are going to solve that in a second...

Now, also... longtime watchers of the show know that this is not a new position... preferreds have paid off. Common hasn't... I've got street cred... preferred street cred... and I don't think it's going to be any different this time... in fact, it might be better...

The preferred is the play play on a resuscitated Detroit... not the common... Why?... First, the yield on the preferred, whether it be Ford or GM, is gigantic... because they been knocked down so hard... so you should be making money no matter what from the payout... not so much from the appreciation of the common stock...

You are not going to get that from the common... In other words, the preferred goes up and you get big, preferred dividends... The common stock... nothing... and maybe not any appreciation at all... If the common stock is saved, the preferred will get a bump too... maybe even a big one...

So, specifically, what are the plays?...

Okay, this is where everybody gets confused, so I'm going to write it down...

For GM, you want to own the 6.25% coupon, 20/33 convertible... or, to dispense with the authentic Wall Street gibberish, you want to own General Motors Preferred (GPM)... that's the GM convertible preferred... it's never going to convert to the common... it's like at $40... don't worry about it...

This is convertible preferred stock... and, you know what, if you don't know what that means... may I suggest in a shameless bit of self-promotion... picking up Stay Mad for Life... This thing has got a 34% yield... and it's trading at $4.27... so you know that you're buying the right one if you're buying the one that's at $4.27... GMP...

Hey look, it's still risky... the preferred could be wiped out too... At least they're paying you boatloads of money just to own it...

If you hold the shares... the preferred shares... by the end of trading on December 26... you'll qualify for the next dividend payment coming on January 15... These payments are semi annual, and the payout per share is 78.125 cents... 17% coming up...

There is no way in which this is in a better play than GM's common stock... no way... This is what you want to buy if you want to play GM...

Now, how about Ford?...

Oh man, this is confusing to, but it doesn't mean... We are going to get it right... The preferred that you want to own here is called the FORD Preferred - Capital Trust II (F-PS)... Please, bear with me... it's so much better than the common stock...

Say you go to Yahoo finance... the most popular site... the symbol is F-PS...

On Google finance... it's FORD Preferred - Capital Trust II (F-S)...

I know, that's the problem... it's very, very confusing, but these are the best ways...

This piece of paper is trading at $9.15... okay, so you want to be sure you have the right one... it's trading at $9.15... and it pays and 81.25 cent quarterly dividend. It's yielding 35%... you see, they are yielding roughly the same...

Why only the common, when you can buy the Ford preferred, and then have them pay you 35% just to hold it?...

Now, if the common stock is miraculously saved by Washington, then the preferred is going to rally huge... But, in the meantime, the preferred is paying you a monster yield... The common is giving you nothing...

I'm going to go over this again... it's GPM... this is the way to play GM, is GPM... and it's a four dollar number and it's going to yield 34%...

And the way to play for is this Ford certificate, which is F-PS on Yahoo... and F-S on Google finance... and you know you've got the right one... there are a lot of these... when you get it around $9.15...

You know, I literally tear what I have left of my hair out, because I know that everyone wants to play these, and I've got to have you in the right ones, because I can't have you in the stuff that I know is going to go... or may just make a little bit of money...

The strategy here is pretty simple... You are playing with fire if you own anything related to the auto makers... it's a real possibility that you might get burned... so you might as well get compensated for it with the preferreds...

And, if somehow, wonder of wonders, miracle of miracles... you can take these bridge loans and actually turn these businesses around... you've got real upside from the GPM and the FORD Preferred - Capital Trust II (F-PS)...

We like their preferreds because, even if automakers turn into zombie firms, or fail miserably, they are still putting money in your pocket as they go down or nowhere.

Take the loss... I want you to take the loss in the common stock... sell, sell, sell... because you were so excited... and I want you to go buy these preferreds...

Just as an aside here... can I just say I think it's a disgrace that Congress is giving Chrysler even one red penny... First of all, this company has already been bailed out once in the 70s. How dare they come back for seconds?...

More important, Chrysler belongs to Cerberus, a big fat private equity fund... it's not a publicly traded company... it's just owned by a bunch of plutocrats... with a ridiculous amount of influence in Washington, and no one is speaking out about this... If Chrysler needs money, it should ask Cerberus, the firm that took it private... they own it. Congress shouldn't have to put up money for Cerberus... By giving Chrysler money, we're just compensating a bunch of already rich guys at Cerberus... making a bad investment. That's outrageous... makes me steamed... and you know, this is highly unusual for me, because I am a statesman... so it takes a lot to get me angry...

The bottom line...

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The Bottom Line!:     I don't think it's a good idea to try to play the auto bailout at all... but I know that everybody wants to... so, if you absolutely must, don't own the common stock of Ford (F) or General Motors (GM)... own the preferreds... The ticker symbol, once again, is GPM for the piece of paper that I want you to buy for GM... and the Ford one is the Ford Capital Trust II... and that's F-PS on Yahoo and F-S on Google. At least you'll get major yield to compensate for the risk you are taking.

[verbatim recap]