Today’s Daily Angle comes from Wikinvest Wire members MoneyMorning.com. You can read the full article on the Money Morning blog.

General Motors Corp. just logged its first quarterly profit since 2007. The company also claims to have paid back its government loans “in full,” and is rumored to be interested in buying back its financing arm.

But the truth of the matter is that GM isn’t as far down the path to recovery as it would like the public to believe. The company’s strong first quarter was greatly aided by Toyota Motor Corp.’s (NYSE ADR: TM) highly publicized recalls. Its claims that it has paid back government debt have been greatly exaggerated. And the United Automobile Workers (UAW) union is already pushing for restoration of many of the perks that it lost during the auto industry’s near collapse.

General Motors reported first-quarter profit of $865 million as its revenue surged 40% to $31.5 billion. That made for the company’s first quarterly profit in three years. GM - a company that took millions in taxpayer money to remain viable and came close to running out of money in 2008 - reported free cash flow of $1 billion.

GM in April repaid the balance of its $6.7 billion loan from the U.S. government, as well as smaller loans from Canadian authorities. The company aired several ads with GM Chief Executive Officer Ed Whitacre touting that achievement.

Whitacre claimed that his company repaid the government loans “in full” and “with interest five years ahead of the original schedule.” But what Whitacre didn’t mention in the ads is that the loans were paid back with money from another government kitty. The government extended $43 billion in bailout funds to GM in addition to the nearly $7 billion in loans the company claims to have repaid.

At this point, the U.S. taxpayer still owns a 61% stake in General Motors and a 56.3% stake in Ally Bank, formerly known as GMAC LLC.

GM won’t be able to pay off its debt until it launches an initial public stock offering - the timetable for which is still unclear. GM Chief Financial Officer Chris Liddell said the IPO could come later this year, but it’s just as likely to be pushed off into next year.

“The IPO will happen when the market’s ready and when the company is ready,” said Liddell. “It could happen by the end of this year, that’s a possibility. It could happen next year, that’s a possibility as well.”

GM’s first-quarter profit “is a good, useful step on the road to the IPO,” he said. “I’d like to think the first quarter demonstrates we’re making good progress. Now that we’ve achieved profitability, the next step is to achieve sustainable profitability.”

Sluggish sales in Europe will be one of the major roadblocks to that effort.

GM in the first quarter earned $1.2 billion before interest in North America compared to a $500 million loss in Europe, according to Liddell.

GM plans to cut 8,000 jobs at its European unit, Opel, and reduce its capacity by 20%. Continued restructuring costs at Opel will almost certainly lead to losses beyond the $506 million pretax first-quarter deficit.

Still, even if GM does turn its business around, the taxpayer is likely to remain on the hook for a substantial sum of money. The U.S. Treasury has $43 million tied up in the carmaker, which means GM would need to have a total value of about $80 billion after dilution for the government to break even, BusinessWeek reported. The old GM’s market capitalization peaked at about $53 billion in April 2000, according to Global Financial Data.

Fortunately, the loss on the government’s investment is now expected to be less than $8 billion, which is significantly less than the $30 billion projected in 2009.

Click here to continue reading this article on the Money Morning blog…

Today’s Daily Angle comes from Wikinvest Wire member Rob Powell of TelecomRamblings.com. You can read the full article on Rob’s blog.

For a sector that has been on fire for several years now, the colocation and data center space has had relatively few companies available for investment by the general public in the US marketplace. And with Switch and Data now part of the growing Equinix (EQIX) empire, there are suddenly fewer still. There are of course the two REITs: Digital Realty Trust (DLR) and [[DuPont Fabros (DFT), and there are Terremark Worldwide (TMRK) and Savvis (SVVS), but nevertheless there has been a common perception amongst some that Equinix is the only big game in town. That era seems about to end as a group of dynamic companies are rapidly moving to restore depth to the field.

• Coresites is apparently planning an IPO worth some $230M to which it will add senior debt and a credit facility to amass a warchest of $500M or more. The company will apparently be a REIT, in the vein of Digital Realty and Dupont Fabros and lists some 2M square feet of rentable space in its portfolio.
• Telx made their S-1 filing in March, offering details on their own $100M plans after raising money for expansion last year as well.
• European colocation specialist Interxion is also apparently taking the US IPO plunge. This one has been rumored for years, but apparently the time is finally ripe. The company generated $226M in revenue in 2009, which makes it somewhat larger than Switch and Data was.

I suspect there will be more as well. Amongst other private companies who are aggressively expanding in US markets are QTS, which bought that monster Qimonda facility in Richmond, and Telehouse which has been rather noisy as well over the past year. Are there others that we should be keeping an eye on?

Oh yes, there’s also Cincinnati Bell, which appears to be moving into position with its purchase of Cyrus One from ABRY. More?

Today’s Daily Angle comes from Wikinvest Wire member Yves Smith of Naked Capitalism. You can read the full article on NakedCapitalism.com

The drama of financial regulatory reform is, to a considerable degree, playing right into the industry’s hands.

I have several pet theories as to why this has happened. One is the fact that the drafting of new rules and the related horse-trading started before there had been any meaningful investigations, and more important, there did not seem to be much in the way of forensics in the offing. We had the FCIC, with a limited budget for this sort of exercise, tight timetable, and questionable structure, and SIGTARP, with real prosecutorial powers, but limited resources and a narrow mandate.

Attitudes shifted markedly with the disclosure of the Lehman bankruptcy report by Anton Valukas, and underwent a sea change with the SEC’s suit against Goldman over Abacus 2007 AC-1. But rather than use the sudden change in public perceptions (and perhaps more important, media coverage) to reopen the scope of regulation, Team Obama is hell bent to get Something Done well before mid-term election, presumably to appease “populist anger”.

We seem to be missing a key lesson of the Great Depression, and that is likely by design, given the power of the financial services lobby. The abuses brought to light by the Pecora Commission helped secure the passage of securities reforms. And perhaps as important, it made clear to the banking industry that far-reaching changes were to be implemented. The 1933 and 1934 securities acts reflect a sophisticated understanding of market operations, precisely because some insiders were involved in the drafting of legislation. They recognized they were either going to be on the bus, or under the bus, and chose accordingly.

By contrast, the industry has done a very good job in maintaining a united front against reform. One example: a colleague, who has written a few articles that have appeared on the Internet related to credit derivatives. He has been asked to do expert witness testimony, both for plaintiffs (meaning against the big dealer banks) and for a big bank. Even though his work has been pretty technical in nature and does not implicate the bank in question, the bank and its attorneys are very uncomfortable with the fact that he has exposed tradecraft, and have made it clear that they do not want him publishing at all if he is to work with them. It is one thing to ask an expert witness to review articles pre-publication to make sure they do not compromise a client; quite another to put a gag order on someone who has a long-standing publishing history. Similarly, I have run across others who clearly believe abuses occurred, yet are unwilling to break ranks (and I don’t mean outing themselves, simply talking to an investigator or reporter on an deep background basis).

So the result is that we’ve had proposals come in late in the game that are crowd-pleasing but either ineffective or ill thought out, and that works to the industry’s benefit (they can beat them back, and the existence of a flawed proposal that is taking up legislative and press bandwidth makes it harder for other, better conceived measures to move forward).

One example of the ineffective sort is the so-called Volcker rule, to require depositaries to exit the proprietary trading business. On paper, this is a good idea, but the initial Volcker definition was to distinguish trades executed with end customer versus those that were not, which is not a helpful distinction (bond king Salomon Brothers did a tremendous amount of speculation in its regular trading books, long before there were separate prop desks). Although the language is still in play, banking expert Josh Rosner has said, via e-mail, “the Volker rule has holes large enough to drive 4 Mack Trucks through, side by side.”

By contrast, Blanche Lincoln’s proposal, to force banks to get out of the derivatives business (and the climbdown, to have those businesses separately capitalized), is misguided. The problem here is she and the media have fallen for a master stroke by the industry, that of lumping in credit default swaps with “derivatives”. CDS are highly problematic; they have almost no legitimate uses and come with considerable costs (hugely bad incentives). Moreover, the plans underway will not tame them much. They cannot be margined adequately on a contract by contract basis (any sufficient provision for jump to default risk would render the contract uneconomic and kill the product, which is an unacceptable outcome, so it will continue to be inadequately margined). The best remedy would be to regulate it like insurance (which is what it is) but no one is willing to change directions now.

Plain vanilla swaps, like simple interest rate and foreign exchange swaps are not problematic and customer pricing is pretty transparent. And the banks themselves use these products in large volumes to hedge their own exposures. The flaw in the Lincoln plan is that any derivative business running on an independently financed balance sheet would be unlikely to be large enough to handle the hedging needs of the banks themselves.

Click here to continue reading this article on the Naked Capitalism blog…