Looks like Deutsche Bank's finally jumping on the whole "GM doesn't have money to pay the rent past December" bandwagon, issuing a price target of $0 on GM stock in light of a likely bankruptcy filing without federal intervention. As a result, GM shares are now down over 27% in morning trading. We're glad to see analysts at huge global financial institutions with millions of dollars in resources are finally on the same page as a car blog with a silly name. [Marketwatch]
What's the fastest way to devalue a stock?
Get a large bank to declare that it will be worthless.
Had the same bank issued an optimistic statement, the stock price would have swung the other way.
Large public speculation is often a self-fulfilling prophecy.
Stock prices are all about perception. They are only tied to earnings as much as the traders believe they are.
With a rosy outlook, GM would survive much longer. With optimism comes higher stock prices. GM could then offer up shares to regain solvency. With stock prices as they are, they couldn't get into the black by selling everything. With higher stock prices, their main asset (their stake in the company) would be worth enough to use as collateral to obtain a line of credit without having to forfeit any portion of ownership.
Percieved value is a powerful market force. If the masses would refuse to sell at fire sale prices, the prices would subsequently go up.