TTBF

Buffett Buys GE, Goldman: Should You Follow?

GE has 2 pretty big problems as I see it:

1. The have a large financial business that is hurting as are the rest of the financials. I just read Charles Morris's book, 'The Trillion Dollar Meltdown' and discovered that GE was a pioneer in creating Asset Backed Securities to finance numerous things the company needs. According to Charles this lowers apparent debt using special purpose entities. An ABS is a type of CDO. The company is obviously desperate enough to give Buffet a 10% guaranteed dividend to raise some capital. Now there are questions about whether GE can get another $85 billion they need the next time their short-term commercial paper comes due. Its hard to imagine that a great company like GE would have problems getting that loan but credit markets are frozen and need time to thaw.

2. GE has been a proxy for the economy and the economy doesn't look good going forward. All of the analysts that I listen to say the earnings outlook for the entire market is going to turn pretty ugly as numbers are released this quarter. Estimates are starting to be cut at a breakneck pace. And GE is a bellweather.

With the short ban being lifted last night and earnings for GE out tomorrow, look out below. This is a rare instance that I would consider buying put options on a company but I just did. Will buy some more on any bounce.

The fed is backstopping top rated commercial paper right now which should help GE. However, the downturn in earnings could be a real problem for them going forward and perhaps threaten their AAA credit rating at some point. I have to believe thats what they are worried about most and what prompted them to give Buffet the sweetheart deal.