General Electric: Genuine Risk of Collapse? 160 comments
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General Electric (GE), the legendary American institution, founded in 1878 by Thomas Edison, is in deep trouble. Its PR machine has been in constant spin mode as the company sinks deeper into despair. It is one of the few companies in the U.S. that still retains a AAA rating. Considering Moody’s and S&P’s track record, rating companies and financial instruments, that AAA rating is not worth the paper it is written on. One look at GE’s balance sheet will convince you they do not deserve a AAA rating. AAA companies do not need to take the desperate actions that GE has taken in the last few months.
click to enlarge
Source: Mike Shedlock
The virtual crash in its stock price indicates that there is something seriously wrong with GE. The stock reached $53 at its peak in 2000. It closed below $17 this past week, the lowest level since the mid-1990s. CEO Jeffrey Immelt, who took over from icon Jack Welch in 2001, has made his mark by managing the company to a 68% decline in its stock price. You will not see anyone on CNBC take a hard look at GE’s financial statements or ask the CEO tough questions, because Mr. Immelt signs their paychecks. While shareholders have taken a bath, Mr. Immelt, a Harvard MBA, raked in $72.2 million of compensation between 2002 and 2007. A company that is known for its pay for performance mantra evidently does not hold its CEO to the same standards.
The first signs of cracks in this global institution appeared in April 2008. GE has met their earnings projections consistently for decades. It is widely known that they are masters of “legal” earnings manipulation. Accounting rules allow for wide discretion in reserves and estimates. GE Capital has always been a black box within the larger company. GE does not provide detailed financial information about this division. This lack of detail has allowed GE to use this division as its backstop for meeting earnings estimates. During a better than expected quarter, they take extra reserves and have the quarter meet estimates or beat by one cent. During a down quarter, they use those excess reserves to meet estimates. The GE Capital division would also sell liquid assets at the end of a quarter to guarantee smooth sailing. This earnings management had lulled analysts and stockholders into being complacent regarding GE’s business.
In mid-March Mr. Immelt confirmed publicly that GE would meet earnings expectations of $.50 to $.53 per share for the quarter ending March 31. With 2 weeks left in a 12 week quarter, Mr. Immelt was confident in their results. When GE reported earnings of $.44 per share in early April, the world was shocked. The stock, which had reached a yearly high of $37, dropped 16% to $31. Knowing that GE always has excess reserves to manage their earnings, with only two weeks left in the quarter, made the magnitude of the earnings miss beyond belief. Former CEO Jack Welch went on CNBC and said, “I’d be shocked beyond belief, and I’d get a gun out and shoot him if he doesn’t make what he promised now. Here’s the screw-up: you made a promise that you’d deliver this, and you missed three weeks later. Jeff has a credibility issue.” Mr. Welch is absolutely right. Jeffrey Immelt has no credibility left. His excuse was, "We had planned for an environment that was going to be challenging...[but] after the Bear Stearns event, we experienced an extraordinary disruption in our ability to complete asset sales and incurred marks of impairments and this was something that we clearly didn't see until the end of the quarter." A top CEO should have a better handle on his business.
The next daggers into Mr. Immelt’s credibility occurred in late September and early October. On September 25, with the stock trading at $25.50, Jeff Immelt lowered GE’s earnings guidance, suspended its $15 billion stock buyback plan and declared they needed no outside capital. He reaffirmed their commitment to maintaining a AAA rating with these actions. One week later he convinced Warren Buffett to invest $3 billion in the company by paying him an annual dividend of 10% while granting him warrants to purchase $3 billion of common stock at $22.25. It then sold $12 billion of additional shares at $22.25 to the public. These were not the actions of a company or CEO that is in control. AAA rated companies do not have to pay 10% interest rates. Credit default swaps protecting against GE Capital default traded as if GE is a junk bond credit.
The issuing of $12 billion in common stock at $22.25 per share is an act of extreme desperation and brings into question whether GE has a lucid strategy. How can investors have confidence in a company that bought back 97 million shares for $3.1 billion at an average price of $31.69 in the first nine months of 2008, and then issued $12 billion worth of stock at $22.25 in October? Not only did they buyback $3.1 billion of stock in 2008, but they also bought back $27 billion of stock in the prior three years at an average price of $36.46. This is a twist on the old saying, buy high and sell low. If Mr. Immelt was not so focused on trying to beat short term earnings goals by wasting $30 billion of cash on share buybacks, he wouldn’t have had to beg Warren Buffett for $3 billion last month at very poor terms from GE’s perspective. A CEO is responsible for preparing their company for a worst case scenario and should never risk the company in an attempt to meet short term goals. Mr. Buffett may have made one of the few mistakes of his glorious investing career. He has lost $762 million on his investment in 1 ½ months, a return of -25%.
Most people know GE as an industrial conglomerate that makes light bulbs, appliances, and jet engines. Their advertising agency has positioned GE as a “green” company with an advertising campaign called “Ecomagination”, stressing wind power, hybrid locomotives, and environmentally friendly products. The truth is that GE should have an ad campaign called “Bankomagination”. GE is a bank disguised as an industrial conglomerate. GE Capital is a division of GE, which truly dominates the results of this company. GE Capital has three subdivisions (GE Commercial Finance, GE Money, and GE Consumer Finance). In 2003, GE Capital generated $5.9 billion of GE’s $17 billion of profits, or 35%. By 2007, GE Capital was generating $12.2 billion of their $29 billion of profits, or 42%. Being a bank during the boom years of 2004 to 2007 did wonders for GE’s bottom line. Being a bank now is a rocky path to destruction.
GE Capital is enormously leveraged to consumers throughout the world. It issues credit cards for Wal-Mart, Lowe’s, IKEA, and hundreds of other retailers throughout the world. GE Capital provides private label credit card programs, installment lending, bankcards and financial services for customers, retailers, manufacturers and health-care providers. It also owns 1,800 commercial airplanes and leases them to 225 airlines worldwide. GE Capital provides credit services to more than 130 million customers — like retailers, consumers, auto dealers and mortgage lenders. Their financial products and services include a suite of offerings, from credit cards to debt consolidation to home equity loans. GE Capital has also been a huge benefit to the industrial side of the business. GE Capital provides financing for customers that buy GE power turbines, jet engines, windmills, locomotives and other big ticket items. The crucial question is whether the people and companies who received loans from GE Capital can pay them back. GE’s future is highly dependent on the answer to this question.
The AAA rating of GE allows GE Capital to borrow funds at lower rates than all banks in the United States. Their cost of capital has been 7.3%. Losing that rating would be disastrous to GE Capital. Between 2002 and 2006, GE Capital did what most other banks did and levered up. Their ratio of debt to equity rose from 6.6 to 8.1, while profits quadrupled. GE Capital jumped into the subprime mortgage market in 2004, buying WMC Mortgage. It sold it in 2007, after racking up losses of $1 billion in 2007. It also unloaded a Japanese consumer lending company at a $1.2 billion loss in 2007. It is clear that risk management has taken a back seat to profits at GE Capital. GE Capital’s profits plunged 38% in the 3rd quarter, the main reason for GE’s earnings miss. Analyst Nicholas Heymann of Sterne Agee wrote: "Investors now understand that GE uses the last couple weeks in the quarter to 'fine-tune' its financial service portfolios to ensure its earnings objectives are achieved. It turns out it really wasn't miracle management systems or risk-control systems or even innovative brilliance. It was the green curtain that allowed the magic to be consistently performed undetected."
Egan-Jones, an independent rating agency, calculates that GE is levered ten-to-one, a more conservative and higher number than the company's eight-to-one figure. Cofounder Sean Egan believes that, depending on the off-balance-sheet holdings, actual leverage could be still higher. His firm rates the company single-A. Looking at GE’s Balance Sheet between 2003 and today, clearly shows a deteriorating situation. Long-term debt grew from $172 billion in 2003 to $381 billion by the 1st quarter of 2008, a 121% increase. Their long term debt to equity ratio grew from 68% to 77%. Short-term debt grew from $157.4 billion in 2003 to $218.7 billion in the latest quarter, a 40% increase. The 70% increase in profits between 2003 and 2007 were undoubtedly juiced by the use of prodigious amounts of debt. Stockholder’s equity is at the same level as 2004. With cash of only $59.7 billion and short-term debt of $218.7 billion, the freezing up of the credit markets has put GE at major risk when trying to rollover their debt.
All indications point to a company in trouble. Mike Shedlock, a brilliant financial analyst, recently quoted an insider at GE Capital. "Sales personnel are not allowed to make any more loans this year, and are being told to try to get their customers to pay off their loans. All prepayment penalties are waved for closing loans and GE Capital is about to launch a new incentive scheme for the salespeople that makes it worth their while to get their customers to agree to participate." This sounds like the actions of a company desperately trying to pay down debt. The risks and unknowns for this company are many:
GE announced plans during the summer to sell its lighting and appliance business. It expected to get $5 to $8 billion for these divisions. It has found no buyers.
GE announced that it wanted to sell its private label credit card business, with $30 billion of outstanding receivables. It is not surprising that no buyers have appeared, knowing that many of these receivables are owed by subprime borrowers. GE does not provide bad debt figures for these portfolios.
Paying Warren Buffett 10% on preferred shares when their cost of capital has been 7.3% is a sign of intense stress.
GE has $74 billion of commercial paper outstanding that rolls over every few days. GE was rumored to not being able to rollover this paper. They are now utilizing the Fed’s short-term funding facility. This is a sign of weakness.
GE holds $53 billion of off-balance-sheet assets that are pieces of securitized debt, some of which are hooked to interest rate swaps with counterparties that are now troubled. The value of these assets is a complete unknown, but is likely to worth far less than $53 billion.
GE’s recent 10Q had the following disclosure: “GE Capital has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients. Many of these transactions expose GE Capital to credit risk in the event of default of its counterparty or client. In addition, GE Capital’s credit risk may be exacerbated when the collateral held by it cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to it.”
Much of GE’s debt is covered by credit insurance. This insurance is virtually worthless, as the credit insurers have collapsed.
GE has $43 billion of long-term debt maturing by June 30, 2009, with another $38 billion due by December 31, 2009. The terms for refinancing this debt will be much worse than the previous terms.
GE convinced the U.S. government to insure $139 billion in debt for GE Capital using the new FDIC program. Why does a AAA company need a government guarantee?
Rumors of a dividend cut have been swirling in the business press. GE spokesmen have guaranteed the dividend only through 2009. Many other banks have promised no dividend cuts in the last year, only to cut dividends a month later.
The most hazardous unknown for GE is the global recession that will likely ravage the company in 2009. Their five main businesses (Technology Infrastructure, Energy Infrastructure, Capital Finance, NBC Universal and Consumer & Industrial) will all be under severe stress in 2009.
Technology Infrastructure is dependent on airline and military spending. Airlines are struggling just to survive and conserve cash. The Obama administration is likely to reduce military spending dramatically.
Energy Infrastructure is dependent on wind, oil and gas companies. With the spectacular decrease in oil prices, these companies are massively cutting capital budgets. Financing for large projects has dried up.
Capital Finance is dependent on consumer credit, commercial lending & leasing, and real estate. This division will be overwhelmed by a tsunami of deleveraging in 2009. Consumers will be defaulting in record numbers and commercial real estate has just begun to implode.
NBC Universal is reliant on advertising revenues from companies and consumer spending on entertainment. Every company in America will be reducing their advertising budgets in 2009 and consumer discretionary spending is collapsing.
Consumer & Industrial is dependent on consumer’s spending money on appliances. A housing collapse has led to collapse in appliance sales, which will continue in 2009
The future does not look bright for GE. A perfect global storm will hit GE in 2009. GE is like a giant supertanker loaded with debt that is in danger of being swamped by this perfect storm. A GE collapse would not bring good things to life. It would bring about the mother of all bailouts.
Disclosure: None
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This article has 160 comments:
"GE is like a giant supertanker loaded with debt that is in danger of being swamped by this perfect storm"
is a sentence overloaded with strange similes in danger of collapsing under the weight of an 800-pound metaphorical gorilla perched on top of the elephant in the room..
1. GE has been winning very large contracts in Turbine and energy sectors recently.
2. GE has access to the TARP funds and the government is supporting their use of commercial paper. This market will eventually open back up. Just takes time
3. GE is still profitable and growing their cash. Selling assets and issuing some stock has helped them increase their liquidity in time to support operations.
4. While a great many companies are struggling to borrow money, GE is now well capitalized despite the numbers shown above. With access to the Fed window and TARP, they will have no problem meeting short term debt obligations.
5. Stating that Buffet has made a huge mistake is quite a leap here. He is very long term minded and his record speaks for itself.
6. Panic in the markets always make for the best buying opportunities. This one is deep and serious but will eventually recover. GE is not going under here and $10 is a stretch. This is not AIG.
7. GE can trim operating costs in many ways and Jeff Imelt is doing the best he can in a very difficult environment. Jack Welsh for all his returns destroyed the environment with negligence and greed in many towns, cities and rivers during his tenor. Just ask the people living along the Hudson River. Can you say PCB's.
Dow 6k could happen but that would just make this a better bargain. My recommendation here is to buy some stock and take a PUT position to limit any future downside, or write covered calls to increase your total return.
Yeah, Immelt took over from Welch, who is wrongly credited as some sort of management guru.
The truth is - GE amassed a HUGE amount of leverage under Jack Welch, almost like a hedge fund. Lots of risky loans and huge debts. But it was a big bull market, and it didn't blow up in his face.
Now it is ready to blow up, and Immelt gets blamed??
Puh-leeze! Jack Welch is perhaps the most overrated CEO in the history of American business. He is, without a doubt, one of THE most self-aggrandizing. The fact that this joker took about $1 BILLION of compensation out of GE is truly disgusting, and shows how very corrupt and distorted our business systems are here in the U.S. - from executive pay to a wildly distorted stock market that overvalued GE for the last twenty years, at least.
It has an exposure to consumer goods sector ,military sector and financial sector exposure as well.
Ge got cought in the financial squeeze just as any other company did due to mass paranoia.
As the issues facing corporate America and companies outside the U.S are being effectively addressed ,GE is in a better position than most companies to recover.
There is no point in addressing day to day flactuations.
Also like the comment above about Welch... It's easy to do well in bull market and leav e the cleanup to the next guy... Sounds kind of like our present Presidential election, doesn't it?
jegan
Your article gave more information on GE than almost all financial papers combined.
GE? According to the Disclosure, you have no position in GE. Why would you do all that research and then not act on it? It was particulary informative when you explained how GE manipulates reserves at the end of each quarter to hit its guidance. I thought I knew a lot but that was new to me. I bet GE is not the only one who pulls that stunt. What a bunch of suckers these analysts are who make a big deal out of corporate guidances. Just another Wall Street scam to fleece the suckers. I can see GE hitting 10 or below. Where is AIG right now?
To gabe b.- How can you say GE is a "well diversified company?" In 2007 42% of its business was in lending and 30.7% was in infrastructure sales which is highly dependent on sales to developing countries which are highly unstable as a market. That is a total of 72.7% in just two business categories which currently have a very high level of risk. You either have an unusual definition of "diversified" or a very subtle sense of humor that is beyond my comprehension.
C'mon...be a straight shooter and omit the question mark from your title, since you are so sure we are all doomed!
This should read: The virtual crash in the stock market indicates that there is something seriously wrong with short-term trader mentality and the lack of regulations on short sellers.
If we don't do something about these 2 things soon, we ALL will have a lot more to worry about then just GE's stock price.
BTW: your article is total bs.
If what you say is true, then this bell weather company forebodes a perfect storm for the economy and for the stock market.
"The virtual crash in its stock price indicates that there is something seriously wrong with GE." The market cannot be trusted to "indicate" anything right now because EVERYTHING is down. Does that mean that every company in the country has something seriously wrong?
Ugh, I don't even want to comment on the rest of the article. I have work to do, but I just had to say something.
Seems like the more a company spends on exec. compensation, the worse they do.
I can see tomorrow's headlines: GE collapse could put 3m out of work, GE execs grilled by Congress, GE bailout would cost $1 Trillion.......
Time to buy more TIPS.
"Rumors of a dividend cut have been swirling in the business press. GE spokesmen have guaranteed the dividend only through 2009. Many other banks have promised no dividend cuts in the last year, only to cut dividends a month later."
Current management has created zero shareholder value and run the financial arm of the company into the ditch. The rest of the businesses are actually worth something and over the long-term will grow the company in meaningful ways. Cut the fat & this beast will begin a revival that sells what the world needs for industrial innovation.
On Nov 17 10:01 PM donzoab wrote:
> Well written however totally slanted and missing some important facts.
>
> 1. GE has been winning very large contracts in Turbine and energy
> sectors recently.
> 2. GE has access to the TARP funds and the government is supporting
> their use of commercial paper. This market will eventually open back
> up. Just takes time
> 3. GE is still profitable and growing their cash. Selling assets
> and issuing some stock has helped them increase their liquidity in
> time to support operations.
> 4. While a great many companies are struggling to borrow money, GE
> is now well capitalized despite the numbers shown above. With access
> to the Fed window and TARP, they will have no problem meeting short
> term debt obligations.
> 5. Stating that Buffet has made a huge mistake is quite a leap here.
> He is very long term minded and his record speaks for itself. <br/>6.
> Panic in the markets always make for the best buying opportunities.
> This one is deep and serious but will eventually recover. GE is not
> going under here and $10 is a stretch. This is not AIG.
> 7. GE can trim operating costs in many ways and Jeff Imelt is doing
> the best he can in a very difficult environment. Jack Welsh for all
> his returns destroyed the environment with negligence and greed in
> many towns, cities and rivers during his tenor. Just ask the people
> living along the Hudson River. Can you say PCB's.
> Dow 6k could happen but that would just make this a better bargain.
> My recommendation here is to buy some stock and take a PUT position
> to limit any future downside, or write covered calls to increase
> your total return.
No.
Several Points:
1.) Even if GE Capital's leverage is 10:1 and not 8:1 as they reported it, that would still make them the LEAST levered major banking institution. The next least levered is BAC with 11, give or take. The point being, that leverage is fairly conservative for a bank. If you simply dislike financials, C (15) makes for a much more appealing short, GS (19) even more (if leverage is your main concern).
Also, when you mention liquidity, let's be fair and say that the talk about their inability to roll over short-term paper were rumors, which in a market where obvious rumor-mongering has occurred several times means nothing. If you believe GE cannot walk into the offices of Western Asset or PIMCO and sell an offering, then better buy a gun and bullets rather than play the stock market, because the U.S. will be a third world country. GE uses the FED because it is cheaper, who wouldn't want to use cheaper money? They are not idiots. Then, you ought to mention they have tens of billions of untapped credit lines, should they need them.
Last but not least, unlike other banks, GE holds assets to maturity, rather than 'for sale', which is significant in that it does not have to write them down just because other folks are fire-selling theirs. So long as companies pay their rents, GE only marks up the reserves for losses and calls it a day. In that line of thinking, I believe a couple of months ago they published a report and their LTVs were very low in the 60 to 70 range across the board. So, houses in England and factories in Taiwan need to drop 30-40% in notional value before GE starts losing money (and I bet these exposures are hedged).
2.) GE's industrial divisions are in the smack middle of all industries you want to be in long-term: water, energy inf., energy efficiency, alternative energy, transportation, etc. Furthermore, they have an enormous backlog, which will likely push them through the next 12 months (assuming we are not heading into a recession). If I am not mistaken, they still cash flowed $22B in 2008, despite the mess we are in. That speaks volumes to me when other banks cannot even make it to the black ink.
3.) The CDS market means very little these days, which is not apparent for people who don't understand how it works. Right now, every CDS out there has a large component of counterparty risk added on top of the actual credit risk of the issuer's debt. Add to that the fact that CDS' on any company with a financial exposure are used as short bets on credit markets and you end up with pricing that does not necessarily reflect the long-term viability of the debt issuer.
4.) Buffett did not lose squat. He is sitting happily collecting his 10% on the preferred. If I can get the world's largest industrial to pay me 10% on a debt instrument, on top on getting free warrants, I'd do it every day of the week and twice on Sunday.
5.) They have been reactive to the environment so far, which cannot make a shareholder happy. NBC needs to go and the Capital division needs to be delevered. All that being said, they have messed up far less than the jokers on Wall Street. On top of that, their industrial side is doing just fine. Will they feel pain short-term? I have no doubt they will. Good news is, once we get out of this, they'll be one of the behemoths left standing. In the meanwhile, an investor can collect a cool 7.5% cash on cash return on their dividend.
Best,
Chefo
Low fossil fuel prices are not helping GE in the short term. Currently, natural gas generated electricity is cheaper than wind generated electricity. This will also affected other buyers of GE wind turbines in addition to Pickens.
On Nov 17 11:42 PM weissass wrote:
> GE/NBC/MSNBC virtually elected Obama...now let's see what favors
> President Obama returns to his obvious benefactor. I'm not into conspiracy
> theories, but there must be a reason GE backed BO?! Maybe GE management
> felt the Dems would be more willing to bail 'em out if they fail?
> Maybe GE likes the Dem's idea of infrastructure projects as an economic
> stimulus? Maybe the arrogant GE execs think they can more easily
> manipulate Obama & the Dems? Just honest speculation....
Does capitalism work best or can the people (socialism) run big corporations better than those who either started the corporation or have worked their way up the ranks?
I've been looking for GE to get close to the single digits for a while now. The SP500 is going below 700, the Dow below 7000, so it has to happen.
This article does a good job of explaining what the fundamental problems are at GE.
I would be building a position in GE, but the announcement that they would not cut the dividend spooked me. That seems to be the way to let people know you are about to cut.
I don't agree with the Immelt GO BIG< GO GLOBAL, Hedgefund approach, but the company is strong is many major sectors, like energy, infrastructure, health care...all of which are going to prosper because of the economic problems and government funding world wide. In addition, Immelt is trying to refocus the Financial service company, but the timing is poor. In short, "all generalizations are wrong...including this generalization" and you must dissect the problem and recognize that there are BOTH good and poor pieces of the portfolio.
I believe that Immelt is committed and with some luck and refocusing and a willingness to admit mistakes and ADAPT... GE should be able to do what it did over 127 years...selectively grow...remember this it is the only remaining company from the original DOW and it is not a basket case like the other GENERAL...General Motors.
Bill Rothschild, author of the only objective, comprehensive and insightful assesssment of GE's successes and failures... THE SECRET TO GE's SUCCESS and GEWatcher blog (strategyleader.com)
'I was about to buy but will now wait'
'My Mother had 1mil in GE now worth 300k'
'GE will go under $10 and the DOW 6k'
Please...I feel bad for the idiots that listen to this crap.
Sure they have issues, but this article is so slanted I am surprised I don't have to read it at a 90 degree angle.
Every company is having the same challenges for the most part, and all have done some financing to make sure they don't have to rely on short-term notes that have little market at the moment.
So what? Is this only GE's problem? No.
So buy or don't, but this is a market decission and not specific to GE. You either think this is close to a low for many stocks, or you don't.
Remember when GE was the 'Goldman' of industrial management. GE was perceived as a breeding ground for top managers.
Those days appear finished (for now).
McNerney, Nardelli, Immelt were all gunning for the top post.
McNerney with 3M and Boeing has outpaced the group.
Some comparisons would help.
GE is deserving too much recognition and admiration for its management. They have been so good at managing people's expectation rather than the business. Coming up with all those management trainee programs when in actual fact, they should be instituting proper risk management, business management.
Jack is really one pompous and know-it-all ex-CEO. He created all these debts under his own term and to pass it on to Jeff. I'm pretty sure Jeff is also simply following much of the fabulous, huff-and-puff management system that has been created. And now because of the timing, he gets the blame instead. If only Jack was still the CEO now ... let's see whether he will talk big as it is now.
I have always wondered why GE deserves the AAA rating when I compared their balance sheet against companies like IBM, Microsoft, Cisco, Berkshire etc.. now I know why.
On Nov 17 10:12 PM copperbaron wrote:
> >>took over from icon Jack Welch in 2001<<
>
> Yeah, Immelt took over from Welch, who is wrongly credited as some
> sort of management guru.
>
> The truth is - GE amassed a HUGE amount of leverage under Jack Welch,
> almost like a hedge fund. Lots of risky loans and huge debts. But
> it was a big bull market, and it didn't blow up in his face.
>
> Now it is ready to blow up, and Immelt gets blamed??
>
> Puh-leeze! Jack Welch is perhaps the most overrated CEO in the history
> of American business. He is, without a doubt, one of THE most self-aggrandizing.
> The fact that this joker took about $1 BILLION of compensation out
> of GE is truly disgusting, and shows how very corrupt and distorted
> our business systems are here in the U.S. - from executive pay to
> a wildly distorted stock market that overvalued GE for the last twenty
> years, at least.
On Nov 17 10:01 PM donzoab wrote:
> Well written however totally slanted and missing some important facts.
>
> 1. GE has been winning very large contracts in Turbine and energy
> sectors recently.
> 2. GE has access to the TARP funds and the government is supporting
> their use of commercial paper. This market will eventually open back
> up. Just takes time
> 3. GE is still profitable and growing their cash. Selling assets
> and issuing some stock has helped them increase their liquidity in
> time to support operations.
> 4. While a great many companies are struggling to borrow money, GE
> is now well capitalized despite the numbers shown above. With access
> to the Fed window and TARP, they will have no problem meeting short
> term debt obligations.
> 5. Stating that Buffet has made a huge mistake is quite a leap here.
> He is very long term minded and his record speaks for itself.
>
> 6. Panic in the markets always make for the best buying opportunities.
> This one is deep and serious but will eventually recover. GE is not
> going under here and $10 is a stretch. This is not AIG.
> 7. GE can trim operating costs in many ways and Jeff Imelt is doing
> the best he can in a very difficult environment. Jack Welsh for all
> his returns destroyed the environment with negligence and greed in
> many towns, cities and rivers during his tenor. Just ask the people
> living along the Hudson River. Can you say PCB's.
> Dow 6k could happen but that would just make this a better bargain.
> My recommendation here is to buy some stock and take a PUT position
> to limit any future downside, or write covered calls to increase
> your total return.
On Nov 17 11:42 PM weissass wrote:
> GE/NBC/MSNBC virtually elected Obama...now let's see what favors
> President Obama returns to his obvious benefactor. I'm not into
> conspiracy theories, but there must be a reason GE backed BO?! Maybe
> GE management felt the Dems would be more willing to bail 'em out
> if they fail? Maybe GE likes the Dem's idea of infrastructure projects
> as an economic stimulus? Maybe the arrogant GE execs think they
> can more easily manipulate Obama & the Dems? Just honest speculation....
On Nov 17 10:01 PM donzoab wrote:
> Well written however totally slanted and missing some important facts.
>
> 1. GE has been winning very large contracts in Turbine and energy
> sectors recently.
> 2. GE has access to the TARP funds and the government is supporting
> their use of commercial paper. This market will eventually open back
> up. Just takes time
> 3. GE is still profitable and growing their cash. Selling assets
> and issuing some stock has helped them increase their liquidity in
> time to support operations.
> 4. While a great many companies are struggling to borrow money, GE
> is now well capitalized despite the numbers shown above. With access
> to the Fed window and TARP, they will have no problem meeting short
> term debt obligations.
> 5. Stating that Buffet has made a huge mistake is quite a leap here.
> He is very long term minded and his record speaks for itself. <br/>6.
> Panic in the markets always make for the best buying opportunities.
> This one is deep and serious but will eventually recover. GE is not
> going under here and $10 is a stretch. This is not AIG.
> 7. GE can trim operating costs in many ways and Jeff Imelt is doing
> the best he can in a very difficult environment. Jack Welsh for all
> his returns destroyed the environment with negligence and greed in
> many towns, cities and rivers during his tenor. Just ask the people
> living along the Hudson River. Can you say PCB's.
> Dow 6k could happen but that would just make this a better bargain.
> My recommendation here is to buy some stock and take a PUT position
> to limit any future downside, or write covered calls to increase
> your total return.
I wouldn't invest in GE either right now, but the point could have been made with less obvious attempts to draw large conclusions from limited pools of data.
"The virtual crash in its stock price indicates that there is something seriously wrong with GE. The stock reached $53 at its peak in 2000. It closed below $17 this past week"
--- what's a 'virtual crash'? most companies' stocks have fallen by a very large percentage this year.
why not complain about the share buybacks last year? why wait until financial markets have frozen up and then throw out cheap shots?
" Paying Warren Buffett 10% on preferred shares when their cost of capital has been 7.3% is a sign of intense stress"
---- more drama queen.
Really ?
" I will rebuild our military to meet future conflicts. "
<b>Remarks of Senator Barack Obama, "The American Promise",Democratic National Convention, August 28, 2008 Denver, Colorado </b>
"We should expand our ground forces by adding 65,000 soldiers to the army and 27,000 marines. "
<b>Renewing American Leadership by Barack Obama -From Foreign Affairs, July/August 2007 Journal of Foreign Relations </b>
The balance sheet shows good liquidity. Looks like a smart company preparing for hard times ahead. As for Gov Guarantees, you have to get them if you can, because you will be competing for capital against companies that have it. Gov guaranteed AAA debt will cost you much less that AAA debt alone. As you correctly pointed out, the ratings are useless now!
GE is and will continue to be one of the world’s strongest global companies with leading positions in aviation, energy, healthcare, entertainment and financial services. Contrary to the author’s assertion that GE is a bank in disguise, more than half of our profits come from our infrastructure and media operations, including wind turbines, aircraft engines, oil and gas equipment and healthcare technology. Our financial services business, GE Capital, will contribute about $9 billion to overall profits in 2008, more than any other financial services company in the world. Moreover, even with the impact of higher credit losses, GE Capital will post a return on equity in the teens this year, well above its competitors. GE Capital has been and will continue to give GE enormous competitive advantages by supporting our infrastructure businesses.
Among Mr. Quinn’s many misconceptions is that GE’s profits have been fueled with increased debt. GE’s infrastructure and media businesses, which contribute over half of our earnings, generate strong cash flow and operate virtually debt-free. Clearly the profits in these businesses have not been fueled by debt. Almost all of GE’s debt is used to finance GE Capital. Financial services businesses like GE Capital borrow money to finance loans, making money on the spread. GE Capital’s debt has grown at a rate commensurate with its assets.
GE Capital differs from other financial institutions because it is mostly a secured lender. Strong underwriting and risk management have led to low loan-loss ratios compared to competitors. While losses are likely to rise for all lenders next year, we expect our losses to remain below those of most of our competitors.
The current environment is tough. We have taken actions to keep the Company safe. These include reducing leverage and long-term debt needs to solidify our Triple-A credit rating and raising an additional $15 billion of cash through an equity offering. This is added cash that gives us additional protection and flexibility. There are also a number of programs the U.S. Government has put in place to stabilize the U.S. financial system. We have pursued those that help us to ensure safety first, but also do not impede our future growth plans. We are currently participating in the Commercial Paper Funding Facility and the Temporary Liquidity Guarantee Program. Both of these programs provide temporary liquidity support to help companies access the debt markets in challenging times. They put us on a level playing field with participating financial services companies. They do not present an advantage for the Company, but rather they remove a disadvantage. And we are paying a market-based fee to issue debt under these programs. They are not “bailout” programs nor have we received any government investment or funds from the Troubled Assets Relief Program (TARP). We have a strong balance sheet and we are focused on serving critical financing markets.
Finally, the author pronounces judgment on Warren Buffett’s recent investment in GE after only six weeks. We hardly think this warrants a response, but we will just say that Mr. Buffett’s track record over many decades speaks for itself.
The environment remains volatile and challenging. We will continue to evaluate all options to ensure the Company is best positioned to compete and perform successfully in the near and long term. We are providing regular updates on the company at www.gereports.com.
Why don't you report the charge off rates on the $30 billion of receivables?
If your balance sheet is so solid and liquidity so splendid, why issue $12 billion of stock after just buying back $3 billion earlier in the year? Sounds like some major strategic thinking going on there.
Face it, the curtain was pulled away and the wizard was revealed at the end of March. GE uses GE Capital to meet earnings guidance every quarter. When the markets froze, GE could not sell the assets they need to sell to make earnings.
Amazing that a GE operative has to go on a blog to address my article.
Jim Quinn ( I have no short position in this stock)
When I see PR bullshit, I like to cut through to the truth. Read my old article about Wachovia, well before their collapse.
But then what?
“The first thing you should keep in mind is the adage that states one should buy at the point of maximum pessimism. Pessimism has certainly reached a ludicrous height today -- to the point where even positive events are being given a negative spin.
For example, when corporate executives start buying shares in their own company, that generally bodes well for the stock prices. Who knows better if a company's earnings will improve than the CEO and others near the top? However, when General Electric's CEO, Jeffrey Immelt purchased his company's shares recently, the Bloomberg headline read, "Immelt's GE Purchases Signal Sell." The fact that insiders have stepped up their purchases of stock in the past four months is now being interpreted as a symptom of overconfidence and a reason for investors to ditch shares! As though panic-stricken outsiders suddenly know more about a company's long-term prospects than the ones running it!
Besides, what is the point of reporting insider buying if it is not a buy signal? What would insider selling portend? I mean, if insider selling is a sell signal and insider buying is a sell signal, that means no signal at all. So the media may as well stop reporting insider trading altogether.
We think pessimism this extreme should be taken as a sign that stocks have very little room left to fall.”
I subscribe to two Leeb letters, have recently purchased GE, and intend on purchasing additional shares if/as share prices decline. Best of luck to all!
Wake up people. These CEOs are corrupt, self serving greedy bastards. They all have Harvard MBAs and manage for the next quarter.
GE is still a AAA rated stock, well run, and one of the best diversified companies.
Sure - GE has been negatively impacted by the global economic crisis, but so has EVERY other company on the planet.
Is EVERY other company doomed to collapse as well since their stock has also dropped 50% in the past few months?
Who would short this stock???
GE proclaims that it's dividend is SAFE?
Is there any evidence that they will be forced to cut this dividend???
I guess you don't consider a balance sheet facts. I guess the stock buyback figures from the 10Qs aren't facts. I guess the earnings miss and Immelt's compensation aren't facts. What kind of a bozo are you? Did you even read the article?
You only have a dividend yield of 8% if you bought the 2,000 shares today. At what price did you buy the shares? The dividend is not safe. No dividends are safe in this environment.
I have been buying GE shares at these levels and will continue to do so. I disagree with the poster.
And Forbes or Fortunes, whoever made that chart showing the different branches of GE and their earnings over time, should be given credit as that was ripped off straight from one of their articles from last week.
In the end, I'll take Buffett's opinion over anyone else's but mine...and I agree with Buffet.
GE is still the world's most profitable (read they make money STILL) finance company and while it is required to refi its debt over time as that is the way the financial aspects are structured, it does not mean it is a poorly run company. It simply means the system in place at the moment does not work...it doesn't mean the company is losing money hand over fist, it simply a victim of the current environment.
When GE starts reporting losses than that's one thing...but that hasn't happened.
You people focus only on the income statement. The balance sheet is where the shit is hidden. Plus the $53 billion of off balance sheet crap. GE Capital is a black box with minimal disclosure for good reasons. Don't believe their PR spin machine.
Did he use his own personal funds to buy the 83,000 shares, or did he borrow the money from GE? Buying on the open market isn't what it used to be.
While the author has no position in the stock, he is constantly being accused of trying to get people to short the stock, as if he'd somehow benefit from the transaction. Meanwhile, people who clearly have a vested interest, via their 401K's or mutual funds, to see the stock go higher, are the main people doing the accusing. A bigger bunch of hypocrites would be hard to find.
There are a million comments here and it's impossible to address all of them, but here are some of the main issues that most seem to be missing:
Simply because a stock has been around for along time, is no reason to believe that it will always be around. Anyone proposing otherwise is worse than an idiot and deserves to lose every dime they invest.
Diversification is not always a good thing. In the stock and financial world we are currently experiencing, diversification merely means that you get to lose money in a whole host of industries rather than just losing money in one industry. It does not spread your risk, it simply increases it across a broader range of industries, since the baby is being thrown out with the bathwater. Just as the old chestnut, "a high tide floats all boats," so the opposite is true in bad times. Right now, there is no place to hide. Every investment is losing money, including pure cash accounts which are paying less than the rate of inflation.
Owning GE stock since Immelt took over was as good an investment as putting your money in a piggy bank paying nothing. The stock has been virtually stagnant during one of the most vital times in stock investing history. Anyone who couldn't make money in since 2001, shouldn't be investing or running any company. In fact, he shouldn't be allowed to breed for fear another generation of managerial nitwits will be allowed to pass on his techniques. The issue of whether Jack Welsh is better or worse is silly, at best. He at least made money when there was money to be made.
If you think that simply stating that Warren Buffet invested in the stock and that's good enough for you, then you are brain-dead. Buffet has made his mistakes over the years, and I'd be willing to bet that this is going to be one of them. But even Buffet, who must have had extensive access to GE's books before handing them money, attached onerous conditions to the loan. A 10% interest, rights to buy warrants below what was then market, and let's not forget that he bought Preferred shares, which gives him priority rights in any liquidation (something none of us could get). Anyone who interprets Buffet's actions as acts of faith and belief in management or the company, isn't paying attention.
LIkewise, if you think that stock dilution is a good thing, or putting up divisions for sale for which your name has become synonymous during one of the worst market conditions ever seen, is a good thing, then you'd probably do as "good" a job as Immelt in running that company into the ground. Who's shopping for an appliance division during a housing crisis? Sheesh. And no one but the author sees that as an act of desperation?
As for the so-called "safe" dividend--Let's see, they're paying 10% to Buffet, close to 8% to the common shareholder, and they're carrying nearly $5.5 billion in debt. Yesterday, they announced the recall of nearly 500,000 wall ovens due to a fire hazard. Uh, sure, you go ahead and count on that dividend. Insiders sure aren't counting on it. Total insider ownership is .06%, and that counts Immelt's going on a buying spree since Feb. 08 giving him about 1.6 million shares. But guess what? The reason they think he's the kiss of death, is because he'd been catching a falling knife. Of the 1.6 million shares. only 50K have been bought below a price below $26.42. So much for the boss having an idea about where his own business is going.
I could go on and on, literally forever. But the dreamers on this blog will just go on and on believing whatever they want because they have to. They have money on the long side. This may be the dumbest and most biased group of investors I have ever had the displeasure of reading in all my investing years. Perhaps only AAPL has more Kool-Aid drinkers in their group,.
Someone, please, for the sake of your family, please learn to read a stock chart or buy a book on investing. Emotion is your enemy here, not the author.
From Bloomberg on October 27, 2008
"General Electric, the biggest U.S. issuer of commercial paper, threw its weight behind the Fed's plan last week to show support for the facility, spokesman Russell Wilkerson said. "There is a role for us and other large issuers to play here in demonstrating that this action is good for the market and very important for the buyers of GE paper as it provides a secondary market," Wilkerson said last week."
On Nov 19 11:26 AM JGQ wrote:
> Why wasn't Jeff buying when the company was buying back $30 billion
> at $36 a share? I guess he didn't think it was a good purchase personally,
> but a great purchase to reduce the share count so EPS would go up,
> so he could meet his bonus goal. He is probably borrowing the money
> from GE to make the purchases.
>
> Wake up people. These CEOs are corrupt, self serving greedy bastards.
> They all have Harvard MBAs and manage for the next quarter.
bull market and leav e the cleanup to the next guy... Sounds kindof like our present Presidential election, doesn't it?'
Clinton's people had more to do with the financial crisis than Bush's (remember when Summers, Rubin and Greenspan threw Brooksley Born and the CFTC under the bus?) Don't get me wrong, there is a lot of blame to go around, and taking everything besides the financial crisis into consideration, Bush was more of a royal screw-up. I just wanted to put that into context to level the partisanship of said poster..
I wish I could come up with material like yours. That was priceless. It reminded me of another clever metaphor on a UK TV show called "Charlie Brooker's Screen Wipe", in which Charlie said that doing [whatever] was "like trying to build a cathedral out of peas".
GE and GM (and others) all got far more earnings from their finance arms than from any other operational division... all that goes away now, and all of it was 100% foreseeable.
Cheers
GT
On Nov 17 09:19 PM bobby_h wrote:
> Great article, very informative.. just..
> "GE is like a giant supertanker loaded with debt that is in danger
> of being swamped by this perfect storm"
> is a sentence overloaded with strange similes in danger of collapsing
> under the weight of an 800-pound metaphorical gorilla perched on
> top of the elephant in the room..
>
On Nov 19 02:00 PM drbob66 wrote:
> Funny thing is, Jeff Immelt DID buy some of his stock when it was
> around 33 or 34...just before they blew their Q1 earnings. I believe
> he also bought more in the 20's -- and then at 15. My guess is he'd
> buy more if it ever gets to 10. Was it a good decision? Dunno...I
> guess he thinks the stock will be higher at some point in the future.
> It's all basically gambling, isn't it?
Everyone knows the only players in the markets now are Paulson, Paulson and Paulson!!!
Comon Paulson! Help your buddies at GE!!!!
It looks like Cramer, Regan, Lauer, Brian and all the other buddies of yours at NBC and CNBC need a stool softener.
Even Rosie is going back to work 'cause whe's going broke in this economy.
Comon Paulson! We know you can pull off another later afternoon rally with that missing $2 Trillion!!
Comon Paulson!
Shill, Baby Shill
This Depression Market
Shill, Baby Shill
This Mother Down!
Spend some more of that missing $2 Trillion Paulson!!!!!
Shill the markets my friend.
Buy! Buy! Buy!
Not much time left Paulson!
Shill that baby!
Shill GE! Shill GM! Hell Paulson! Shill anything that starts with a "G" in this nueconomy!
Spend that $2Trillion.
Comon boy!
Shill it up!
Oh Paulson!
You and this sham Nueconomy are for the birds dude!
How am I going to pay off my 2008 Suburban unless my home price goes up by 500 percent in the next year?
Volume is shooting up! I see you are back in business buying everything in sight for no reason at all Paulson! Comon Paulson. Spend a few $billion on GE today buddy!
Comon shill market boy! Go Paulson! Go!
Everyone is selling off you buy orders!
I guess the people need to eat.
Looks like you'll need to work another 30 years to retire from GE, if...
“SEC chairman Arthur Levitt, has called earnings management a ‘widespread but too little challenged custom.’ Empirical data appear to support Levitt’s position. A 1999 study of thousands of corporate earnings… found that quarterly earnings reports that meet analysts’ expectations exactly or exceed them by just a penny per share occur far more frequently than would be likely in a random statistical distribution… ‘It’s hard to find corporations that don’t pump up their earnings’.”
I wonder if they then had any idea of the extent to which such systematic deception by companies like GE, who claimed to be models of good management, would "undermine the capital markets"?
GE's mistake was getting involved in the finance business! It reminds me of a company we had researched that owned the technology behind an FX trading system and 'patents on ancient Chinese health secrets'. i.e. What business are you in? We sell investments, couches, and also a fine wine.
Maybe companies will start doing what they do best. GE was a great manufacture of industrial equipment (light bulbs, medical instrumentation, engines, etc.), but a less than average bank. Overall, this crisis will be a good thing for the economy although it will be painful.
The last eight years proved Repubs could outspend the Dems...maybe the next eight years will prove the Dems can be fiscally conservative? I might have to go Blue!
LONDON (MarketWatch) -- General Electric (GE:General Electric Company GE 14.45, -1.61, -10.0%) is in talks for funds from four Asian sovereign wealth funds. Financial Times Deutschland initially reported the news and Bloomberg News also reported the talks, citing a GE executive. The talks are being held with China Investment Corp., the Government of Singapore Investment Corp., Temasek Holdings and China Safe Investments.
(I BUY LG.)
NBC OVERPAID THE ACTORS IN "FRIENDS" TO THE TUNE OF $1,000,000. @ PER EPISODE... REMEMBER?
(I NEVER DID LIKE THAT SHOW.)
AND DOING BUSINESS WITH IRAN...
(WHAT CAN I SAY.)
On Nov 18 08:26 AM Help me please wrote:
> Hello! My mom used to own $1,000,000 of GE stock, and now down around
> the worth of $300,000. She won't sell because she thinks it would
> be a waste. Won't it eventually go up in the next ten years. Do you
> recommend to sell at such a loss? I'm worried. Comments?
On Nov 18 10:46 AM Mowog wrote:
> Immelt, a Harvard MBA: steer clear. Agree that GE consumer products
> tend to be junk, which is a bad sign, too.
GE's medical equipment, power turbines, generators, and nuclear plant designs are world class. Their infrastructure divisions have a huge installed base and they are reaping the benefits of the parts and services required to keep these plants running. Infrastructure is and will continue to be stretched to help the overall company. This environment could not have been predicted and the preferred stock offering brings much needed liquidity in an unstable market. A good move, easy to poke holes at on the surface. GE will act swiftly to stay afloat, bet on it. Management is constantly pressed on base costs even during good times. Look into the actions GE Aviation took when 9/11 hit. Swift, sometimes ruthless, but the division survived, got lean, and continues to grow. This article brings up some good points, but is as one sided as Keith Olbermann...a GE employee:-)
I've read many of his articles.
He has to stop reading Nouriel Roubini before he writes his stuff though.
Hear Hear!!!
JW paid plenty to blow his own horn. Having instituted the 80/20 rule (80% of your income comes from 20% of your clients) is one of the dumbest business rule ever.
On Nov 17 10:12 PM copperbaron wrote:
> >>took over from icon Jack Welch in 2001<<
>
> Yeah, Immelt took over from Welch, who is wrongly credited as some
> sort of management guru.
>
> The truth is - GE amassed a HUGE amount of leverage under Jack Welch,
> almost like a hedge fund. Lots of risky loans and huge debts. But
> it was a big bull market, and it didn't blow up in his face.
>
> Now it is ready to blow up, and Immelt gets blamed??
>
> Puh-leeze! Jack Welch is perhaps the most overrated CEO in the history
> of American business. He is, without a doubt, one of THE most self-aggrandizing.
> The fact that this joker took about $1 BILLION of compensation out
> of GE is truly disgusting, and shows how very corrupt and distorted
> our business systems are here in the U.S. - from executive pay to
> a wildly distorted stock market that overvalued GE for the last twenty
> years, at least.
It would have been nice to read a few months ago :)
Now most of this stuff may already be priced in.
With access to the window and tarp GE should be able to survive, even though excel junkies at GE capital hedge fund almost brought it down.
On Nov 17 10:12 PM copperbaron wrote:
> >>took over from icon Jack Welch in 2001<<
>
> Yeah, Immelt took over from Welch, who is wrongly credited as some
> sort of management guru.
>
> The truth is - GE amassed a HUGE amount of leverage under Jack Welch,
> almost like a hedge fund. Lots of risky loans and huge debts. But
> it was a big bull market, and it didn't blow up in his face.
>
> Now it is ready to blow up, and Immelt gets blamed??
>
> Puh-leeze! Jack Welch is perhaps the most overrated CEO in the history
> of American business. He is, without a doubt, one of THE most self-aggrandizing.
> The fact that this joker took about $1 BILLION of compensation out
> of GE is truly disgusting, and shows how very corrupt and distorted
> our business systems are here in the U.S. - from executive pay to
> a wildly distorted stock market that overvalued GE for the last twenty
> years, at least.
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Rightly or wrongly Jeff Imeldt is paying the price of keeping them awake.
On Nov 18 12:34 AM Osterix wrote:
> James: You convinced me. I am going to short GE. Why dont you short
>
> GE? According to the Disclosure, you have no position in GE. Why
> would you do all that research and then not act on it? It was particulary
> informative when you explained how GE manipulates reserves at the
> end of each quarter to hit its guidance. I thought I knew a lot but
> that was new to me. I bet GE is not the only one who pulls that stunt.
> What a bunch of suckers these analysts are who make a big deal out
> of corporate guidances. Just another Wall Street scam to fleece the
> suckers. I can see GE hitting 10 or below. Where is AIG right now?
>
>
> To gabe b.- How can you say GE is a "well diversified company?" In
> 2007 42% of its business was in lending and 30.7% was in infrastructure
> sales which is highly dependent on sales to developing countries
> which are highly unstable as a market. That is a total of 72.7% in
> just two business categories which currently have a very high level
> of risk. You either have an unusual definition of "diversified"...
> or a very subtle sense of humor that is beyond my comprehension.
Several comments about Jack Welch but not one mention of what could be poor judgment by Warren Buffet.
On Nov 19 10:59 AM JGQ wrote:
> GE spin machine in full spin mode. What about the $30 billion of
> stock buybacks to meet EPS goals? Don't you wish you had that now,
> Mr Wilkerson.
>
> Why don't you report the charge off rates on the $30 billion of receivables?
>
>
> If your balance sheet is so solid and liquidity so splendid, why
> issue $12 billion of stock after just buying back $3 billion earlier
> in the year? Sounds like some major strategic thinking going on there.
>
>
> Face it, the curtain was pulled away and the wizard was revealed
> at the end of March. GE uses GE Capital to meet earnings guidance
> every quarter. When the markets froze, GE could not sell the assets
> they need to sell to make earnings.
>
> Amazing that a GE operative has to go on a blog to address my article.
>
>
> Jim Quinn ( I have no short position in this stock)
>
> When I see PR bullshit, I like to cut through to the truth. Read
> my old article about Wachovia, well before their collapse.
It seems Bush is putting the finishing touches on his good bye presents for the US & the World... Big oil/Foreign Oil is now positioned to buy up Corp. America (including GE) and Obama will have MANY MORE problems to deal with as Bush's in-action is driving the US/World into MAJOR economic collapse, BYE GEORGE!.
Consider what will happen if we begin to reduce our oil dependency, what then will happen to Big Oil? The answer is that they will have INCREASED earnings having bought all the major suppliers of energy and any other segments of America's industry that look promising for "pennies" on the dollar, having just earned record MEGA profits!
Unless Obama gets Bush to stand up and ask for joint effort now, OUR economy will continue to go downward faster and faster fueled by international foreign Oil fueled shorting.
Would Obama have the votes to nationalize the Big Oil companies for the "good" of the US?
History may note that Bush's final gift to America was another WW I (Worldwide Woes) or EWW 1 (Economic World War One) that will make it MUCH harder for Obama to change as many things as he indicated during his election speeches. Then in four years of desperate times globally, the Rep.'s will say that he did not keep his promises to the American people, the campaign to be funded by Big Oil (and it's investors) which finally controls most of the industrial might of America!
On Nov 18 04:18 AM longandshort wrote:
> I find it interesting that this article appeared twice, once on www.minyanville.com/ar...
> in the morning and now here in the evening. I sense a very strong
> bias to encourage short selling of this stock . I am surprised the
> author did not compare GE to the US deficit.....the govt is in a
> deeper hole that GE in terms of borrowing and lending, did he not
> dare say that the US economy on the whole is fried as we are a credit
> driven economy, or that he cannot really short the Treasury?
> C'mon...be a straight shooter and omit the question mark from your
> title, since you are so sure we are all doomed!
(1) The author asks why the AAA company had to use Federal facilities! Does he have any clue about the status of the credit markets?
(2) The author questions GE's share buyback program. Did he short S&P Futures in October last year? Very few people except the perma-bears would have predicted the worst year ever for the US stock market.
(3) The author questions why GE agreed to pay Buffett 10%. The author seems to be living in alternative world where he does not understand how Mr. Buffett's imprimatur helps a company; in the case of GE it allowed them to sell common stock and raise more capital.
(4) The author wonders how GE will roll over its long term debt. GE can continue to raise short-term debt via the Fed's commercial paper facility, till the credit market improves.
(5) The author sees GE's efforts to get its customer to pay loans back faster and reduce its balance sheet as a sign of weakness, and not as prudent action in the time of a credit crunch. The irony couldn't be more obvious: the author is critical of GE because of their leverage; but also critical of their efforts to cut leverage!
I have not analyzed GE enough to say whether GE deserves AAA or not. But the obvious slant in your article hurts your credibility. A shorter article with a focus on the financial metrics which deserve scrutiny would have been more effective in making your case instead of this tome with speculative arguments. Plus calling Mike Shedlock, "a brilliant financial analyst" really destroys the author's credibility. If Shedlock has his way we will be back to the Gold Standard and instead of fighting for oil which at least has a utility value, we will be fighting war for Gold which has very little utility value beyond certain industrial applications. What we need are well defined regulations which are followed and enforced to ensure accountability and reward for carrying risk, not just for pushing risk to the next guy.
I personally believe things will turn around for GE. Still, what we are experiencing is very frightening.
If you really want to make money in this stock market, you have to find opportunites that are being overlooked. Check out my latest post on my site about them!