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Right now there are few things scarier than the post-market report on CNBC. It’s almost like watching a horror movie.
And I’ve got some zombie stocks that you need to stay far, far away from.
A zombie is a dead person brought back to life without speech (keep quiet or you don’t get any TARP money) or free will (Uncle Sam
is now the largest shareholder).The Japanese invented the modern zombie – not the living dead person, the living dead bank. We now have a financial system and an
auto industry comprised of zombie banks and companies.The following are eight companies that qualify as the living dead.
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Zombie Stock #1: AIG (AIG)
This once-great insurance company is being kept alive because of huge obligations created through derivatives it sold. It is now
being broken up, limb by limb.The eventual taxpayer loss could endow enough colleges to permanently create half a million tuition-free slots for students or pay
for health insurance for every American doing without.True shareholder value: zero
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Zombie Stock #2: Bank of America (BAC)
In the past year, Bank of America CEO Ken Lewis lost his mind and bought not just failed mortgage company Countrywide, but failing
investment bank Merrill Lynch, killing his shareholders and turning his company into the largest zombie around.Forget his bravado – the company has huge problems and is fast becoming a ward of the state.
True shareholder value: maybe a buck
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Zombie Stock #3: Citigroup (C)
Citi has more toxic assets than the landfills around the New Jersey Turnpike. Its balance sheet is a wreck, and its off-balance
sheet assets of mostly unknown quality are up to $1.2 trillion.The government is the largest shareholder, and Citi will eventually have to break itself up, a process that began with the placement
of its brokerage arm into a joint venture with Morgan Stanley (MS).True shareholder value: zero
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Zombie Stock #4: Fannie Mae (FNM)/Freddie Mac (FRE)
I lump these zombies – our first zombies – together because everyone else does.
You and I are now the proud owner of these lifeless monsters, which have hundreds of billions of dollars in obligations on mortgages
of declining quality.What’s more, for political reasons, their future will not be resolved for several years.
True shareholder value: zero
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Zombie Stock #5: JPMorgan Chase (JPM)
This may be the first place you read about JPMorgan Chase being a zombie.
It speaks, and occasionally thinks, but it holds toxic mortgages, specifically something called option adjustable-rate mortgages
(ARMs), it acquired when it bought Washington Mutual.The company’s ability to grow will be constrained for three to five years minimum.
True shareholder value: considerably less than its current price
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Zombie Stock #6: Wells Fargo (WFC)
Wells Fargo CEO John Stumpf drank from the same watercooler as Bank of America’s Ken Lewis when it bought Wachovia and its $70 billion-plus
in option ARMs.It will survive, but it has no room to grow due to upcoming write-offs – three to five years’ worth at a minimum.
Real shareholder value: a lot less than the current stock price
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Zombie Stock #7: General Motors (GM)
This is a ridiculous company with an even more ridiculous management group. GM’s cars are mediocre, its union contracts are incredibly
extravagant in a brutally competitive industry, and management seems to think we are still in the 1950s.Recently, the company’s auditors raised even more concerns about the automaker’s ability to survive without more loans from the
government. GM’s own forecast assumes survival based on a car market that is larger in 2013 than it was in 2006. Yeah, right.True shareholder value: zero
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Zombie Stock #8: Ford (F)
Despite its recent successes at negotiating new contracts and its refusal, so far, to accept government funds, when GM goes into
Chapter 11, Ford will have to do the same to remain competitive.Given the ferocity of this downturn, if it didn’t accept government handouts, it would probably end up in some form of forced re-organization
anyway.Real shareholder value: zero
Add privately held Chrysler, which has the same problems as GM, but is much smaller and has less staying power, and several large
auto parts makers, one of which, Delphi Corp., is already in bankruptcy, and you have a zombie auto industry.Given the quality of American industrial workers – the most productive in the world – and the home field advantage, it is beyond
belief how these once-living organisms died and now walk around, scaring politicians, with hands out looking for more of our flesh
– excuse me, tax dollars.I could also write about a whole cadre of regional and small banks, but the most dangerous ones are the big banks that people are
tempted to buy.Stay away. And if you want to see some zombie movies, join Netflix (NFLX)
– a real company with a real future (hint, hint).
