Forget GE, These Are the Industrials Investors Should Consider Owning 53 comments
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My major investment theme this year is to "beware of big bad balance sheets", which I described in late December. I mentioned General Electric (GE) specifically, but I also followed up with a review that described the company as a "value pit" on 12/29. As the stock rapidly descends into single-digit land, I stand by my contention that this will be a tough year for GE investors. I didn't offer a prediction of how low I expect it to trade, but I can argue that the stock could fall another 50% and still be too expensive given its balance sheet burdens.
As I listened to CEO Immelt on CNBC following their earnings last month, I couldn't help but feel that he just doesn't get it. To talk about all that cash on the balance sheet as justification to pay a dividend on the common is ridiculous, as that cash is more than encumbered by the $693 billion in Liabilities on the balance sheet. With leverage at 15X (A/E), and tangible leverage at something like 100-1, GE is an accident waiting to happen in this economic environment.
You can review my negative arguments by going back to the article from late December, but the key points:
- Most of the economic value of the company belongs to the debtholders
- Leverage is extremely high
- Tangible equity is tiny
- Core business at risk due to economic environment
- Weak balance sheet prevents acquisitions and share repurchases and suggests dividend cut
The metrics that I shared worsened in Q4. At the end of the day, there appears to be some belief out there that GE is anything but just an acquisition-oriented, debt-issuing, borrow short/lend long company. I am not sure why. Perhaps people are impressed still by six-sigma despite the fact that so many other companies have adopted the process. Maybe folks are excited that they spend 2% of revenues on R&D. Whatever the case, GE is extremely overvalued if one looks at it as part Financial and part Industrial. S&P actually classifies it as an Industrial, so I will stick to that sector today as I describe a strategy that I think will work well for long-only investors: Buying the good balance sheets.
Let me suggest that while GE is one of the worst, it isn't alone. So many of our largest and "most respected" industrial companies have built unsustainable business models (note to Obama administration: why are you including GE and Caterpillar (CAT) CEOs in your council of outside advisors?). When I look at the members of the S&P 500 Industrial sector, it doesn't take me long to spot the companies that drank from the debt fountain to excess: GE, United Parcel Service (UPS), United Technologies (UTX), Boeing (BA), Lockheed Martin (LMT), Honeywell (HON), General Dynamics (GD), CAT (especially CAT), Northrop Grumman (NOC), Deere (DE), Waste Management (WMI) and more. Some of these companies have built captive finance units, some have repurchased a ton of stock and others have been highly acquisitive. The net result is significant debt and/or other liabilities well in excess of their liquid assets or earnings capacity. Low interest rates have hidden the risk to the companies (debt service coverage ratios are OK looking backwards), but that is changing as these companies move to lock in longer-term financing at higher rates.
The smaller companies in general in the Industrial sector have been significantly more conservative than the big consolidators. They haven't had to boost ROE by repurchasing stock. Their organic growth has been strong enough that they haven't had to buy additional growth.
As it turns out, the big guys overpaid, and they are now stuck with deteriorating businesses and loads of debt. I expect that the prices and valuations will continue to shrink for many of these companies. What is harder to predict is what might happen to the industrials in relatively better shape. I am including a list (click to enlarge) of all Industrials with market caps in excess of $1 billion that meet strict valuation and balance sheet parameters. I expect that we could see rotation into some of these names as investors begin to better understand the lack of value in the equity of some of these larger companies. I am not sure if these stocks can actually rally with this rotation, but I surely expect this list to outperform the sector and perhaps the overall market.
I took the 151 Industrials with market caps in excess of $1 billion and applied the following to reach the 15 names:
- PE <18
- Price/Tangible Book Value <4X
- Net Debt to Cap <10%
- Total Liabilities/Current Assets < 1.8X
- Total Liabilites/EBITDA < 3.5X
I would first point out that below $1 billion, there are another 45 names for any of you who prefer Small-Caps. The list that I have shared isn't buy recommendations but rather a starting point. I actually follow closely only Copart (CPRT), which is the leading marketer of salvaged automobiles (a green play!). While their growth has slowed abruptly and estimates have dropped (maybe not enough), their franchise remains intact. The stock bounced off of big multiyear support at 24 and is one I am considering buying.
While I remain bearish on the economy and stocks and would expect that the smaller industrials with strong balance sheets will "hold up" better during challenging times though most likely decline nonetheless, bulls should be even more enthusiastic about the concept. Companies with small debt burdens and strong business niches should thrive when the economy turns. When investors become more enthusiastic about buying stocks, I would bet that they seek out companies like these as opposed to plowing into the debt-burdened companies that will be issuing stock for years to come to deleverage their balance sheets. While many like to talk about "how strong" GE is in certain markets in which it competes, I would argue that many of these companies are leaders in the small niches in which they compete as well. Bigger is not always better.
Disclosure: No position in any stock mentioned
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This article has 53 comments:
GE is a decent hedge against inflation, either from excessive government spending on infrastructure (GE products and services are in high demand for many types of infrastructure), or from inflation reducing the relative cost of their debts.
However, the fact that GE is a "decent hedge" against inflation doesn't mean its the best choice, and certainly doesn't mean GE has the greatest long-term gains ahead of it relative to other contenders who avoided excessive purchases.
Hence, I'll put some money on GE and feel comfortable (unless it goes the way of AIG), but I'd look elsewhere for big gains.
- Tangible equity a limited metric
- Agree, would like to see the ST debt come down a but seems manageble as we begin to see a thawing in credit markets
- Relative to your screened selections, I prefer GE brand, prod diversity, geo diversity
- Would not underestimate the advantages cash position
- Would not underestimate the advantages of ability to acquire (and integrate) in this environment (its another form of leverage and I don't feel dirty using that word)
I own GE
As far as acquisitions, I think you are fooling yourself. This has been a historical vehicle, but they have to pay for it. Any debt they are issuing should be used to refinance short-term debt. I don't think that they will be able to do "accretive" acquistions with their stock trading at a PE of 8.5-9. I would be surprised to see them be a buyer. They want to be a seller, but failed when they tested the waters, at least for now. In a deleveraging crisis, it makes little sense for anyone to step up and buy assets unless they are fire-sale prices.
On Feb 08 05:15 AM CIK wrote:
> - Div risk priced in
> - Tangible equity a limited metric
> - Agree, would like to see the ST debt come down a but seems manageble
> as we begin to see a thawing in credit markets
> - Relative to your screened selections, I prefer GE brand, prod diversity,
> geo diversity
> - Would not underestimate the advantages cash position
> - Would not underestimate the advantages of ability to acquire (and
> integrate) in this environment (its another form of leverage and
> I don't feel dirty using that word)
>
> I own GE
The past few months were somewhat perverse, as small-cap usually sells of relative to large-cap at the end of a year and starts the year better (January effect). As liquidity was withdrawn from the market in early Q4, small-caps were absolutely hammered and enjoyed a nice bounce in December. While they underperformed in the first part of January and ended the month having given up some of their relative gains from December, they lag now only by 2% (R2000 vs R1000) YTD and maintain an advantage since the Bear Market began. This rather remarkable relative performance flies in the face of traditional market behavior and is very underreported in the financial press and on Wall Street. I expect it to continue as the economy stays weak and attribute it primarily to a big difference in leverage between the Industrials and Financials in the large-cap space and the small-cap space.
On Feb 08 02:50 AM morph366 wrote:
> Some good points about the niche players without lots of debt - the
> index to keep monitoring for signs that investors are moving in the
> manner suggested would be to look for signs of emerging leadership
> in the Russell 2000 index
Used to own common on one......Not sure on the filters (I use fundmentals & PE mostly myself), but SI seems ok too as well as ABB as foreign picks, although there are many of other great foreign companies to choose from as well.
> jack
On Feb 08 12:43 PM fran wrote:
> please share the list of 45 small caps if you can.
Very good work.
You are dead right: too many companies drank up the cheap debt and are now stuck with it on their books.
I believe debt is one of our nation's biggest problems, and it's why we have to diversify overseas where there are better balance sheets, especially in China.
Although I know many people don't trust the numbers that come out of China, I personally have not had any problems.
In my view, your list of companies to research are excellent. Thanks.
On the negative side, General Dynamics (GD) is the only one I'd take slight issue with, mainly because this company has numerous what should be hugely profitable contracts going out for years.
Please continue in this vein of work; we need it badly.
And Clean Harbors...do you even know what they do? They're an environmental services company, not an industrial company...they don't MAKE anything - they dispose of stuff.
seekingalpha.com/user/...
and I'd like to hear his response to this article. This is the second time in a two week period that Alan has stood firm to his thoughts on GE. Alan and I even went round and round about this issue last week. However, I must admit, that GE has done little in recent weeks to prove Alan's points wrong and/or give statements that we can trust.
I will admit, I have been a supporter of GE and I still think the company makes for a good long-term investment if what GE continues to tell us is correct (is it the best investment right now, no, but I think these prices are attractive). However, even being a strong GE supporter, I cannot overlook the double talk from Jeff Immelt from the end of 2007 up through this week. Case in point:
"On Sept. 25, GE stated that its Board of Directors had approved management’s plan to maintain GE’s quarterly dividend of $0.31 per share, totaling $1.24 per share annually, through the end of 2009. That plan is unchanged"
GE’s Immelt: Important to Not Cut Dividends
www.marketwatch.com/vi...
"The board and I will continue to evaluate the company’s dividend level for the second half of 2009 in light of the growing uncertainty in the economy, including U.S. government actions, rising unemployment and the recent announcements by the rating agencies."
If we can't trust the words in relation to a simple dividend payout, how are we supposed to trust what they say is on their balance sheet. Alan seems to be focused a lot on this "693 billion in Liabilities on the balance sheet" (and I don't refute that); but how much of that is covered in the fact that it's within the loan book of GE capital?
The question must be asked though, do you actually have skin in the game in relation to GE? If you feel this strongly about GE going down, then why not prove to us all that you are shorting it?
I have no problem if you are shorting it if that's how you feel. However, no skin in the game to backup your analysis lacks a little merit.
I'm own GE and I'm buying more. I make no prediction of where it will be in 2009 and I don't deny that it could go lower. However, I simply don't see a point where the equity will be worthless 1, 2, 5, or 10 years from now.
On Feb 08 06:17 PM drbob66 wrote:
> Since when are construction and engineering companies (JEC, FLR,
> MDR, GVA) considered industrials?
>
> And Clean Harbors...do you even know what they do? They're an environmental
> services company, not an industrial company...they don't MAKE anything
> - they dispose of stuff.
>
Surely you aren't saying you have a better grasp of the balance sheet than Buffett and/or that you're ability to analyze the value behind GE is greater than his long tenure of doing so. Those no-name companies do very little for me. GE, whose CEO now has an inside track into what Obama's administration is pushing for, is certainly going to benefit from this administration and it's hard to bet against that for any length of time.
On "skin in the game", I don't have a specific position in GE. I tend not to short individual stocks but rather ETFs. I am short SPY, which includes GE obviously.
While you may think that it isn't possible that the equity gets reduced to 5 or lower, I know you must be aware that there have been many examples of heavily leveraged entities that have done that already: FNM, FRE, AIG, BAC, C, etc. Don't pay attention to the price, but rather the total value of the company. What is GE worth? The total par value of the bonds less cash is about $400 billion (market value a bit lower, but not substantially), and the stock is currently worth $116 billion. Let's call the enterprise value $500 billion. I don't have a 2008 EBITDA number, but lets assume is was about $30 billion. The company trades at a pretty high EV/EBITDA. If that valuation were to fall to 10X (and assuming the company can replicate 2008 EBITDA, which would be heroic), the equity is worth nothing.
On Feb 08 06:41 PM U338129 wrote:
> Alan,
>
> The question must be asked though, do you actually have skin in the
> game in relation to GE? If you feel this strongly about GE going
> down, then why not prove to us all that you are shorting it?
>
> I have no problem if you are shorting it if that's how you feel.
> However, no skin in the game to backup your analysis lacks a little
> merit.
>
> I'm own GE and I'm buying more. I make no prediction of where it
> will be in 2009 and I don't deny that it could go lower. However,
> I simply don't see a point where the equity will be worthless 1,
> 2, 5, or 10 years from now.
On Feb 08 06:17 PM ArtfulDodger wrote:
> Mr. Brochstein:
>
> Very good work.
>
> You are dead right: too many companies drank up the cheap debt and
> are now stuck with it on their books.
>
> I believe debt is one of our nation's biggest problems, and it's
> why we have to diversify overseas where there are better balance
> sheets, especially in China.
>
> Although I know many people don't trust the numbers that come out
> of China, I personally have not had any problems.
>
> In my view, your list of companies to research are excellent. Thanks.
>
>
> On the negative side, General Dynamics (seekingalpha.com/symbo...)
> is the only one I'd take slight issue with, mainly because this company
> has numerous what should be hugely profitable contracts going out
> for years.
>
> Please continue in this vein of work; we need it badly.
They are making daily beneficial changes to their position as well (based on what they are reporting obviously).
AIG, BAC, and C also didn't make the types of profits GE Capital made last year nor do they have "the other arms" working in their favor like GE does. What price to you put to that intrinsic value -- I don't see any provision for that.
I just see holes in your analysis much like you see in others'. We all know that accounting documentation can be read in many ways.
The structure of GE capital is different than a bank - they lend out to finance contracts for their own industrial products and projects. It is sometimes difficult to secure $10 billion for a new GE nuclear reactor, for example. They weren't issuing subprime debt to people who shouldn't own homes like BAC. Debt quality counts as much as quantity, and this is why they still hold the AAA rating. What is AIG's debt rating?
Furthermore, their leverage is 8:1 not 35:1 like Citi and some of the other offenders.
The future is bright for GE once the current recession ends. They are well positioned in areas such as alternative energy, and they are going to take a big piece of China and India's future infrastructure pie down the road.
GE is being punished like the banks and I think this creates a good long term entry.
You raise some valid points, especially regarding the relative quality of their loan book compared to others. They do have exposure to less mundane things, though, than project finance. So, I don't think GE Capital is a black hole to the extent large banks face, but it's still facing large challenges. Plus, I believe if we think it through, there will be some serious implications to shrinking GEC in terms of how it impacts industrial sales. It's not like the customers who typically have gotten financing from GE have other sources these days. I believe that the larger risk to GE isn't GEC but the Industrial business slowing. That is where the bulk of the profits reside...
On Feb 08 09:00 PM bigtime99 wrote:
> Immelt has said that GE capital is going to make money in 2009. That's
> pretty impressive in this environment. He's downsizing it appropriately.
> When the tide of the crunch turns, if he is smart he will expand
> it once again; going forward ROE will be far higher if he continues
> the model.
>
> The structure of GE capital is different than a bank - they lend
> out to finance contracts for their own industrial products and projects.
> It is sometimes difficult to secure $10 billion for a new GE nuclear
> reactor, for example. They weren't issuing subprime debt to people
> who shouldn't own homes like BAC. Debt quality counts as much as
> quantity, and this is why they still hold the AAA rating. What is
> AIG's debt rating?
> Furthermore, their leverage is 8:1 not 35:1 like Citi and some of
> the other offenders.
>
> The future is bright for GE once the current recession ends. They
> are well positioned in areas such as alternative energy, and they
> are going to take a big piece of China and India's future infrastructure
> pie down the road.
>
> GE is being punished like the banks and I think this creates a good
> long term entry.
If the DOW goes lower in the short term, then GE and many other stocks will drop in value, of course.
When the DOW hits 10,000, GE should hit $15 to $20. How long that will take is anyone's guess. Though I believe we will see it sooner than most seem to think (Just my humble opinion, and hope for us all)
I've been giving that some thought. We saw such a rapid decline after Lehman went down through the end of the year. Under normal recessionary conditions you would think that with the amount of money being thrown at the problem around the world that the market itself is, at some point, would give us a very severe uptick (i.e. the "V-shape" recovery that analysts discuss).
Problem with that concept that keeps bringing me back to Earth is the fact that so many are being laid off and even more people don't trust the market now (or the inept SEC) and/or they fear for their own jobs.
Even after the stimulus packages are passed, it could take a long time before people start to invest again. I simply don't believe there will be a recovery in stocks again until market confidence is improved (regardless of what company's stock you are talking about) and people stop fearing for their jobs and economic survival.
I like GE's long-term story and I believe it will be stronger going forward. However, I am under no illusions that it could take until 2010/2011 before it does.
I think you are absolutely correct about there being no sustained recovery until market confidence is improved.
In my very basic analysis of past market performance during recessionary events, it seems that they don't last too long before a decent recovery occurs (a few months to a couple of years, though 1974 took longer, and of course, 1929 took decades).
I think we will see a stimulus package rally that could take us up to DOW 9000 or higher, though I don't think it will be sustained. We will have a downside from there and more bouncing around for a time. I'll go out on a limb and say that I think Nov 20 last year was the bottom, though it may be retested before this over.
If we pick our stock buys carefully with the intent of holding through to the recovery and beyond, I believe we will be richly rewarded. If one buys at DOW 8000, so what if it drops to 7000? Down the road, as you pointed out, 2010, 2011 or even 2015 where do you think we will be? DOW 14000...maybe higher. Some stocks will double, triple, quadruple or more in value during this time. Calculate your rate of return on that.
If those who believe we are headed way down into a depression type scenario are correct, then OK, I'll lose a lot of my investment and it will take a very long time, if ever, to recoup. But that is the nature of this game. I prefer to remain an optimist. Besides, in the downside scenario, we will have plenty more to worry about than our portfolios.
I'm long, perhaps very long, GE and our economy. Good luck to you.
On Feb 08 10:03 PM U338129 wrote:
> stockmajor,
>
> I've been giving that some thought. We saw such a rapid decline after
> Lehman went down through the end of the year. Under normal recessionary
> conditions you would think that with the amount of money being thrown
> at the problem around the world that the market itself is, at some
> point, would give us a very severe uptick (i.e. the "V-shape" recovery
> that analysts discuss).
>
> Problem with that concept that keeps bringing me back to Earth is
> the fact that so many are being laid off and even more people don't
> trust the market now (or the inept SEC) and/or they fear for their
> own jobs.
>
> Even after the stimulus packages are passed, it could take a long
> time before people start to invest again. I simply don't believe
> there will be a recovery in stocks again until market confidence
> is improved (regardless of what company's stock you are talking about)
> and people stop fearing for their jobs and economic survival. <br/>
>
> I like GE's long-term story and I believe it will be stronger going
> forward. However, I am under no illusions that it could take until
> 2010/2011 before it does.
Your article is illuminating and rational supported with facts, numbers and objective analysis. Particulary enlightening is that you dialoged with us interactively. This makes it exciting to read your article and the comments. You're dynamic.
Although you mentioned that you're not an expert in following some of the big Cap defense stocks such as LMT, NOC, GD and BA (the Big 4), I wonder if you could share some thoughts with us, in addition to your observations on their balance sheets, regarding their outlook in the coming 2-3 years, i.e., during the first tenure of the Obama administration.
While there had been relatively muted coverage on Obama's intention on the defense budget, perhaps eclipsed by our pre-occupation with the financial crisis and the debate on that sector, it is my belief (without inside knowledge) that given the current budgetary constraints, defense budget would have to give.
As known, late last year a prominent retired Air Force General took the unusual route of going public to ask Mr. Obama not to cancel the Missile Defense Program, in particular the shield in Europe. With the war winding down in Iraq, combat spending will wane.
So what would be your take of the outlook? Thanks in advance.
Teutonic
[Disclosure: I do not own any defense stockslisted in your article, and I am not in the employ of the defense companies listed in your article as well]
You and your kind got us all into this mess and now you all seem to know it all, were where you and your predictions to let us all know how bad it would get, no place because you knew nothing then and you know nothing now. Only now you do your best to short stocks making your greedy money knowing people are scared and its easy to scare them to sell when almost no company is doing well in the market and again the same people that made so many people lose money and retirement are getting rich scaring them into selling so your kind can get rich all over again, all you analyst make me sick and know nothing.
I look at it like this, kind of like when the Katrina Disaster hit, or any Disaster. Most people are trying to help, BUT then we have the looters, analyst are like looters looking for a way to make a buck at someone else’s expense, not helping in any way other than helping themselves to a free ride. Hope the shorts bite you in the butt.
Try helping and stop worrying about the almighty dollar. No, I have no stock, never had enough money to buy into stocks, it just makes me sick to know we have so many people who should be helping instead of looting while others are suffering so. Yes, I sleep well at night, do you?
As for GE, like cramer said, they are too big to a point people don't know what the hell they are doing. Too many things at too many places.
I think you make a valid point regarding budget pressures perhaps impacting our financial commitment to defense spending. It would also seem that when the president talks about spending smarter, that is a relatively easy target. With that said, though, I have been expecting that we could see surprising commitment towards defense spending. I have expressed concern about global security issues becoming more challenging during the economic downturn. The Russian incursion into Georgia and the aggressiveness they have shown on other fronts highlights a deterioration already.
As I said, I was surprised how bad the balance sheets of some of the large defense contractors have become over the years. When I worked as an analyst for an investment manager, I concentrated on Healthcare companies. One of the riskiest things I ever saw was how concentrated some of the companies were with respect to Medicaid or Medicare. I see a similar issue here, with these companies obviously very dependent ultimately upon a single customer (albeit with multiple independent agencies). An investor should not compromise balance sheet protection when absorbing that type of risk. So, while I don't believe I share your near-term pessimism necessarily (at least as a signficant near-term change), I would, nonetheless, be somewhat cautious on the sector despite the low PE ratios.
On Feb 08 11:15 PM Teutonic Knight wrote:
> Alan,
>
> Your article is illuminating and rational supported with facts, numbers
> and objective analysis. Particulary enlightening is that you dialoged
> with us interactively. This makes it exciting to read your article
> and the comments. You're dynamic.
>
> Although you mentioned that you're not an expert in following some
> of the big Cap defense stocks such as LMT, NOC, GD and BA (the Big
> 4), I wonder if you could share some thoughts with us, in addition
> to your observations on their balance sheets, regarding their outlook
> in the coming 2-3 years, i.e., during the first tenure of the Obama
> administration.
>
> While there had been relatively muted coverage on Obama's intention
> on the defense budget, perhaps eclipsed by our pre-occupation with
> the financial crisis and the debate on that sector, it is my belief
> (without inside knowledge) that given the current budgetary constraints,
> defense budget would have to give.
>
> As known, late last year a prominent retired Air Force General took
> the unusual route of going public to ask Mr. Obama not to cancel
> the Missile Defense Program, in particular the shield in Europe.
> With the war winding down in Iraq, combat spending will wane.
>
> So what would be your take of the outlook? Thanks in advance.
>
> Teutonic
>
> [Disclosure: I do not own any defense stockslisted in your article,
> and I am not in the employ of the defense companies listed in your
> article as well]
I resent your holier-than-thou moral superiority argument. First, you accuse me of trying to "take down" GE. What a joke! I am a grain of sand on a beach. As I have stated, I am not even short GE directly (I am not short any individual stock). I have published many negative articles over the past 2 years that I have been blogging (and positive ones as well). While one of my major goals in publishing my views is obviously to promote myself and perhaps find new clients (institutional money managers), another very important driver is to provoke individual investors to think about opportunities and RISKS. I fervently believe that despite being in the worst bear market of our lives, investors continue to not fully grasp the risks to equity investments.
When you say the "you and your kind got us into this mess", I can't help but think that you haven't reviewed my record, which is easy to do thanks to Seeking Alpha. I published several big-picture concerns beginning in the summer of 2007 trying to warn of the impending economic problems. I have on several occasions provided critical analysis of the Fed and the government and made recommendations regarding how to better approach these problems and challenges we face.
To speak negatively but truthfully is not evil but rather noble, especially compared to saying nothing or, worse, sugar-coating. What is evil is the fact that our government and corporate leaders have for years practiced such fiscal irresponsibility and lack of oversight. I can't tell you how many people contacted me after the "value pit" GE article by phone or email. I hope that some of them did sell and save a portion of their life savings, and believing that they did actually does help me sleep at night!
I appreciate that you are frustrated by the current situation, but your angy diatribe towards me is extremely misplaced. Don't shoot the messenger!
On Feb 09 12:10 AM joesavage wrote:
> My guess is Alan Brochstein and other analyst has a short on GE.
> You and all the other greedy people betting against American Companies
> is what are taking the stocks down and some good companies. Hope
> you lose on Feb 23 shorts. Seems GE has not fallen fast enough for
> them so they put like 3 or 4 stories out a day like Mr. Brochstein
> story trying to bring it down, hope you lose your butt of on the
> shorts. So Mr. Brochstein you “didn't offer a prediction of how low
> I expect it to trade, but I can argue that the stock could fall another
> 50%” Seems you do offer a prediction, just shows you’re a bit worried
> about losing your shorts is what it sounds like. Doing and saying
> whatever you can to bring the stock down.
>
> You and your kind got us all into this mess and now you all seem
> to know it all, were where you and your predictions to let us all
> know how bad it would get, no place because you knew nothing then
> and you know nothing now. Only now you do your best to short stocks
> making your greedy money knowing people are scared and its easy to
> scare them to sell when almost no company is doing well in the market
> and again the same people that made so many people lose money and
> retirement are getting rich scaring them into selling so your kind
> can get rich all over again, all you analyst make me sick and know
> nothing.
>
> I look at it like this, kind of like when the Katrina Disaster hit,
> or any Disaster. Most people are trying to help, BUT then we have
> the looters, analyst are like looters looking for a way to make a
> buck at someone else’s expense, not helping in any way other than
> helping themselves to a free ride. Hope the shorts bite you in the
> butt.
>
> Try helping and stop worrying about the almighty dollar. No, I have
> no stock, never had enough money to buy into stocks, it just makes
> me sick to know we have so many people who should be helping instead
> of looting while others are suffering so. Yes, I sleep well at night,
> do you?
Markopolos for SEC chairman!
Alan,
For the record, I make no point in attacking you personally, my focus is the issue (GE's value). You have your views on things (backed up by facts which I appreciate) and I have mine. I'm glad to see you yield somewhat above and that you're not completely lumping GE in with the likes of AIG, BAC, and C (and I will yield some back that GE lived high on the hog in terms of short-term financing for too long and moved away from their roots of the industrial power -- I just believe they can get back on track and move forward).
I appreciate the dialogue and your views. The SEC oversight is actually just a small part of the problem (and the uptick rule is merely a scapegoat and not really signficant at all). The bigger issue was the banking system and mortgage underwriting regulatory failures. No one every seemed to wonder whether or not systemic risk was building with the lower standards and higher amounts of leverage both on and off balance sheet. When the sky is blue, no one carries an umbrella, do they?
On Feb 09 08:19 AM U338129 wrote:
> "Lack of oversight." Biggest problem. The SEC is inept, Cox was an
> idiot for getting rid of the uptick rule, and we now have an organization
> that is nothing but a tax drain on the economy.
>
> Markopolos for SEC chairman!
>
> Alan,
>
> For the record, I make no point in attacking you personally, my focus
> is the issue (GE's value). You have your views on things (backed
> up by facts which I appreciate) and I have mine. I'm glad to see
> you yield somewhat above and that you're not completely lumping GE
> in with the likes of AIG, BAC, and C (and I will yield some back
> that GE lived high on the hog in terms of short-term financing for
> too long and moved away from their roots of the industrial power
> -- I just believe they can get back on track and move forward).
GE is financing their own customers and that is historically a red flag. Selling product, by financing customers, until the company plummets via debt is not new. Grant department store in the late 70s, recently Lucent, GM etc..
Please note again that Buffet purchased preferred debt with an option for shares. He did not purchase additional GE itself (i.e. stock). The questions should be: Does their product line sell the financing or the other way around? What percent of total sales isn't financed?
Of course I have no way of getting those answers. Do I?
You do bring up a great question, the sales/financing ratio would give some transparency to the issue. The more transparency the better.
Side note: Somebody seems to like GE today (14.50% increase as a write this) but that could be short-covering, bank/stimulus package euphoria, quick dividend hit for this quarter before dumping after it's paid, etc. Very volatile stock...Immelt double talks again and it could go to $9 like a certain JPM analyst predicted (said analyst seem to be lacking some credibility at this point however).
As for you, yes I am probably wrong about you. It was not you hammering away with the same story. I do think you were just giving your views like I am. Yes I do get carried away and I know that. As for the holier-than-thou moral, I would not go that far, but I do really care about people, people I don’t even know so if that makes me holier-than-thou moral I’ll take it !!
On Feb 09 07:01 AM Alan Brochstein wrote:
> Joesavage,
>
> I resent your holier-than-thou moral superiority argument. First,
> you accuse me of trying to "take down" GE. What a joke! I am a grain
> of sand on a beach. As I have stated, I am not even short GE directly
> (I am not short any individual stock). I have published many negative
> articles over the past 2 years that I have been blogging (and positive
> ones as well). While one of my major goals in publishing my views
> is obviously to promote myself and perhaps find new clients (institutional
> money managers), another very important driver is to provoke individual
> investors to think about opportunities and RISKS. I fervently believe
> that despite being in the worst bear market of our lives, investors
> continue to not fully grasp the risks to equity investments.
>
> When you say the "you and your kind got us into this mess", I can't
> help but think that you haven't reviewed my record, which is easy
> to do thanks to Seeking Alpha. I published several big-picture concerns
> beginning in the summer of 2007 trying to warn of the impending economic
> problems. I have on several occasions provided critical analysis
> of the Fed and the government and made recommendations regarding
> how to better approach these problems and challenges we face. <br/>
>
> To speak negatively but truthfully is not evil but rather noble,
> especially compared to saying nothing or, worse, sugar-coating. What
> is evil is the fact that our government and corporate leaders have
> for years practiced such fiscal irresponsibility and lack of oversight.
> I can't tell you how many people contacted me after the "value pit"
> GE article by phone or email. I hope that some of them did sell and
> save a portion of their life savings, and believing that they did
> actually does help me sleep at night!
>
> I appreciate that you are frustrated by the current situation, but
> your angy diatribe towards me is extremely misplaced. Don't shoot
> the messenger!
I agree, a 15% increase in one day smells a lot more like short covering before an announcement than anything else. It's not like the bank plan and stimulus package have been a secret.
I like how people are saying that it's the possibility of a dividend cut that could be helping the stock.
Forgive me as I remain skeptical of the SEC for not having a clue as to how to properly control the abusive short-selling that's been going on for a long time. Don't get me wrong, GE deserves a bit of the downturn pain; but it's been a constant onslaught regardless of what news comes out.
I can always rely on Buffett to keep the good deals coming (I am concerned for a transition plan though in the unfortunate even that he passes away). Other than that, I can sit back, enjoy a Diet Coke, and watch the ticker take GE where it may this year. I believe it will the year of the roller coaster with that one but I like the business.
I agree with BigOlDave though, if you're trading this market, and you just sat there today with a 15% increase and didn't take anything off the table, you're nuts!
On Feb 08 07:09 PM U338129 wrote:
> To add, it's not as though Buffett didn't read this balance sheet
> as well. I won't follow the man blindly into anything, I realize
> he has preferred stock and 10% coming in no matter what. However,
> he had skin in the game before that in the way of GE common stock
> and he has locked in a strike price of $22.25 going forward 5 years
> in which he can purchase common stock.
>
> Surely you aren't saying you have a better grasp of the balance sheet
> than Buffett and/or that you're ability to analyze the value behind
> GE is greater than his long tenure of doing so. Those no-name companies
> do very little for me. GE, whose CEO now has an inside track into
> what Obama's administration is pushing for, is certainly going to
> benefit from this administration and it's hard to bet against that
> for any length of time.
Test to those that say they've read his letters, anyone know who the Gotrocks are?
I understand (by no means do I know for sure nor am I as good as he is obviously) what he probably sees in this market, the bear/bull market phenom, the penchant for the large firms with the moats, and the long-term relative risk reduction of buying at these levels versus any other time. However, he gets deals from the likes of GE that you and I will never be privy to (unless you invest in BRK/A or BRK/B). I'll look at what Berkshire is buying but I hardly ever follow because, more than likely, you've missed your chance or you don't understand why exactly Berkshire is buying it or when they might sell certain position. Plus, I would say that nearly 99.99% of people that invest do not have the organization's pain tolerance for paper loss.
I don't throw Alan's (or others') analysis to the wayside. On the contrary, I merge it with my thought processes (based on concepts from Graham, Buffett, Munger, and Lynch) for a full story analysis. I believe that people do need to be concerned with GE's balance sheet (in particular its use and dependence on short-term financing); but, I do believe it's moat within its chosen industries is/are still intact and I believe it will grow substantially through this period as weaker firms go out of business and governments around the world push for what GE does in infrastructure and healthcare.
I would bet "Joe" that your short covering will be difficult this next weeks because there is no sellers of stock anymore only buyers.
And economic war is a terrrorist tactic that should not be completed on your own people. if you destroy your base for commercial gain you will soon devalue your financial health
>joe,
>I agree, a 15% increase in one day smells a lot more like short covering >before an announcement than anything else. It's not like the bank plan >and stimulus package have been a secret.
>I like how people are saying that it's the possibility of a dividend cut that >could be helping the stock.
To blindly and recklessly throw out the words "terrorist attack" shows a very low level of emotional intelligence.
Either way, you get the point. The word "terrorist" shouldn't be used lightly.
It sounds harmless to short a few stocks and often is good for the mix however when you plan with your mega money friends to take down a company or a country the seriousness of the aciton is server and permenant.
I am a globalist and and invest where it makes sense but to nock down and to rape is well, it is fleeting moments.
Emotional or realism consider the risk
expat
To be clear, this is not a personal attack or crusade against you personally.
I will conceed that when you have hedge funds and the like shorting the living crap out of stocks, because they can, then that doesn't help anyone but themselves. When you are out to completely destroy the equity of a company, regardless of what that does to those existing shareholders, then you are a modern day mobster in my opinion.
The fact that it happened so easily under Cox and his SEC completely undermines our entire market system.
On Feb 08 02:50 AM morph366 wrote:
> Some good points about the niche players without lots of debt - the
> index to keep monitoring for signs that investors are moving in the
> manner suggested would be to look for signs of emerging leadership
> in the Russell 2000 index