Bond Bullies

Don’t believe all the hype about General Motors and Ford being cheap stocks, Cramer said Monday. Both companies have so much debt they’re not worth much at all – except to their creditors.

That’s right. The book value of GM’s equity is negative; Ford’s equity is a barely significant amount of its capital. These companies’ debt, it seems, has overtaken any equity they have in their own business. That puts power not in the hands of stockholders, but the debt holders.

Cramer said these “bond bullies” could be about to take over. That’s what happened at Bethlehem Steel once pension, healthcare and debt obligations overwhelmed the company. Bethlehem stock looked like a bargain, much like GM and Ford do now, as the share price continued to drop. That so-called “deal” disappeared, though, once the company did.

Cramer sees parallels in Ambac and MBIA, where he said the common-stock investor is no longer in control. Citigroup faced a similar situation in 1990 until Prince Alwaleed of Saudi Arabia came to the rescue. If Citi – and Bank of America, Wachovia, Merrill Lynch and Lehman Brothers – don’t find that kind of angel this time around, Cramer said, these financials could end up like the autos.

So don’t let any on-the-surface cheapness of a stock lure you into buying, especially when it comes to GM and Ford, both companies Cramer said could be owned by its creditors soon enough.

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