Kirk Kerkorian gives up on Ford Motors, has huge losses on stock positions.

Famous investor, financier Kirk Kerkorian is pulling out of the stake he took in Ford Motor Co. just six months ago, selling 7.3 million shares at a fraction of his purchase price.

Kerkorian announced just last April that he had bought 100 million shares of Ford for an average price of $6.91. He then announced a tender offer under which he paid $8.50 a share for an additional 20 million shares. In addition he bought another 22.3 million shares between late April and mid-June at an average price of $6.54 a share, giving his total investment an average price of just over $7 a share.

Kerkorian filed a report with the Securities and Exchange Commission Tuesday that he had sold those shares Monday for an average of price of $2.43, and that he was looking to possibly dump his remaining 133.5 million shares, which represent a 6% stake in the automaker.

The losses that Kerkorian is taking on Ford Motors points out the chaos present in today’s stock market environment. Even seasoned highly successful investors like Kirk Kerkorian can buy stocks that have been badly beaten down only to find that the prices have a long way to go on the downside. The downside may be as far as zero as even long term household name firms run out of all options and file for bankruptcy.

In my opinion, even highly respected old war horse investors like Warren Buffet may get it wrong this time. Buffet and many other seasoned investors may be fighting yesterdays investment war in an investment environment that is completely off the charts as far as possible adverse outcomes are concerned.

It is the enormous size of what has been an completely unregulated derivatives market that concerns me. The market is estimated at about $56 trillion, although no one knows it’s size for sure. Some of the risk may be offset by offsetting positions but no one really knows much about that either. The fact is that an enormous time bomb is still ticking away and could explode at any time.

If a large percentage of the derivative positions still held by financial institutions remain illiquid and mostly worthless the banks and other financial institutions still face huge write offs that may in fact complete the financial meltdown, carrying the good down the tubes along with the bad. There is already a scary peak at how bad these write downs could be. Much of the Lehman Brothers “investment” portfolio was auctioned off for about 8.90 cents to the dollar. Wow!

The hundreds of billions of dollars already thrown at the worldwide financial crunch may only give a temporary lift to financial markets. It is hard to see how more of what largely contributed to the crisis in the first place, too much liquidity and too low interest rates for too long of a time period, are going to fix the problems of solvency. When most of your asset structure is composed of worthless assets borrowing more money to shore up your balance sheet isn’t going to cut it. The worthless assets are still there and will have to be recognized as worthless at some point in time.

In the case of Ford and Kirk Kerkorian it seems that Kerkorian realized that he made a mistake by buying Ford stock “cheap” and is smart enough to cut his losses and to dump the stock before it becomes worthless. Not many investors, seasoned or not, are that smart in today’s new war investment environment. Relying on past measures as to what cheap is may prove to be a painful way to get wiped out.

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