philo_alpha

3 Comments

    • We Love You Freddie, We Love You Not [view article]

      Well, it is not just the traders. Also at Bloomberg's, former Fed St. Louis Chairman Poole finds them insolvent...

      See www.bloomberg.com/apps...

      As highly (impossibly highly leveraged companies) all will be well as long as the market believes all is well. However, when this feeling turns, leverage turning to collapse becomes quite probable when cheap money ends...

      Freddie and Fannie will have to increase their reserves for credit to continue to flow... Now, it seems that this increase will have to come through direct borrowings from the Fed, an injection of capital via Treasury, etc.

      This solution is quite imperfect, though as this will be inflationary money, and because private capital might find safer harbors and allow public funds to prop the mortage market. Given the sizes of the companies, this might prove unsustainable for a period beyond a few months...

      How quickly the market has turned against the companies is indeed a breathtaking turn of events. These are indeed special times!
       Jul 10 12:49 AM
    • GE: More Bad News to Come? [view article]
      The problem with GE is that it has grown very large... and large behemoths always become inefficient and slow moving. GE might be the fastest mover of the behemoths, but it might still be outwitted by medium and smaller companies.

      The good thing with GE is that it has invested in new technologies and industries, though unfortunately mostly through acquisition. If these units survive their acquisitions and continue to be productive, then GE will resume its growth.

      The two immediate obstacles are of course the financial and real estate divisions. If these blow up (or if these already have blown up and we are yet to hear about it, not necessarily this quarter) then a higher cost of borrowing coupled with limited access to the credit markets (that would be a new one for GE) would spell game over to the conglomerate in its current form.

      Not a zero risk stock anymore.       Jun 18 01:06 AM
    • GE: Quintessential American Finance Company [view article]
      The time of cheap money is well past. Let it be because the Fed induced a bubble with artificially low rates, or because a considerable swath of America is in a sense defaulting, unable to cover its subprime and consumer loans, or because oil and commodities are turning scarce just as China and India increase demand for these goods, or because the inflation rate in the U.S. is made for optimistic pipe dreaming (see the current Harper's for more).

      So G.E. is going to have to adjust to pay far more to sustain their leverage. If even less than most for the virtue of being G.E. (yet do we see a naked emperor now?) a very large shock might be coming to the stock.

      Add to this that G.E. has engaged in buying mature full price companies some of them of disjoint or overlapping endeavours... Is G.E. is an Iceland in the offing?

      Yet at the same time G.E. has been the darling of Business Schools and investors everywhere and an incubator of more than one much admirer CEO, and their business methodology is emulated often. This might be a great challenge to the company, but if one company can pull it off, it might be G.E.!       Apr 18 12:41 AM
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